We propose a microeconomic foundation of the multiplier effect and that of the consumption function using a dynamic optimization model that explains a shortage of aggregate demand and unemployment. We show that government purchases boost aggregate demand through a multiplier-like process but...

We develop a Keynesian cross analysis with a dynamic optimization setting that explains long-run stagnation caused by aggregate demand deficiency. We show that an increase in government purchases boosts GDP through a multiplier process, but the implication is quite different from the...

We examine linkages between aggregate household income, distribution of that income, and aggregate cross-country expenditure patterns. We are able to decompose income effects into international income dispersion effects (from variations in average income) and national income dispersion (income...