THE INVESTMENT FUNCTION AND THE BALANCED BUDGET MULTIPLIER THEOREM - A STORY OF SELECTIVE SPECIFICATION

In the first, theoretical, section of this paper it is argued that the Balanced Budget Multiplier Theorem (BBMT) is not valid if consumption and investment (and hoarding, if any) are simultaneously specified as functions of disposable income. In the second, historical, section of the paper it is shown that this limitation to the validity of the BBMT was not noticed in the early contributions to the development of the BBMT and has not subsequently received adequate recognition in the textbook literature.