A dynamic approach to the effects of economic reform and free trade on national income and economic growth
Part of : Αρχείον οικονομικής ιστορίας ; Vol.XXII, No.1, 2010, pages 133-142
Issue:
Pages:
133-142
Author:
Abstract:
Consider an economy characterized initially by full employment of all available resources and excess aggregate demand, repressed inflation, and a general shortage of goods and services. The planned economies of Central and Eastern Europe before the collapse of communism are cases in point. All factors of production are held fixed by assumption.When prices are set free, the general price level rises in response to market forces. This general price increase is accompanied by a change in relative prices because prices tend to increase most in those sectors where the initial excess demand was largest. This process continues until the new profit opportunities and incentives arising in markets where relative prices have increased begin to be exploited by innovative entrepreneurs.
Subject:
Subject (LC):
Keywords:
output, employment, production, economic growth, efficiency
Notes:
JEL classification: F11, F43
