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Abstract

Vol. 53, No. 1, pp. 79-85 (2002)

“R&D Investment and Effective Demand”
Wataru Johdo (Japan Society for the Promotion of Science and ISER, Osaka University)

By introducing a product variety model into Ono (2001), I analyze effects of an R&D promoting subsidy policy, which stimulates new product development in intermediate goods industries, on effective demand. Such a subsidy policy raises productivity in final good sector. But, in the Keynesian economy, which is characterized by insatiable liquidity preference, this rise in productivity causes intermediate good demand to decrease and total labor demand in intermediate good sector to decrease. Consequently effective demand deteriorates through the deflationary pressure caused by expanding imbalances in labor market.