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The paper focuses on Minsky's financial fragility hypothesis incorporated in a growth model and investigates whether an inherently unstable economy can be stabilized by a big and proactive government. Using dynamical systems theory and expanding a supply-driven growth model developed by Lin, Day and Tse (1992), the paper explores how different government spending programs and financing paths can affect the growth, as well as the stability of a capitalist economy. The results and implications of the new frameworks are analyzed, using analytical and numerical methods of bifurcation, to examine the dependence of optimal government intervention on the economic environment. The paper concludes that there is no universal doctrine for the maximization of society's welfare, if the stability of the economy is taken into consideration. The selection of any policy framework should be based on the economic environment and the trajectory of the economy.
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Mentesidis, Stergios, "Welfare versus Stability in "Stabilizing an Unstable Economy": A Minskyan Growth Model" (2012). Senior Projects Spring 2012. 269.