For the long- run unstable case, co

For the long- run unstable case, condition (9.18b’’) shows that an increase in animal spirits and in the short- run goods market equilibrium rate of capital accumulation will be associated with a rising long- run equilibrium debt–capital ratio. Therefore, this seems to be a case for a rising loan rate of interest owing to increased firms’ indebtedness. However, the instability of the long- run debt–capital ratio in this case has to be taken into account. Let us assume that the economy is initially in a long- run equilibrium by a fluke. An increase in the equilibrium debt–capital ratio in the face of increasing animal spirits means that the actual debt–capital ratio will fall short of the new equilibrium. This will cause further deviations of the actual from the equilibrium debt–capital ratio and thus continuously falling debt–capital ratios. Simultaneously, the increase in animal spirits will make the goods market equilibrium rate of capital accumulation exceed the warranted rate of accumulation. The rate of accumulation will therefore cumulatively deviate from the warranted rate. The disequilibrium process will thus be characterized by the macroeconomic paradox of debt again: rising rates of capital accumulation will be accompanied by falling debt–capital ratios. And, again, rising capital accumulation will not be associated with rising firms’ indebtedness and hence there is no reason to assume that loan rates of interest will necessarily have to rise if we take a macroeconomic perspective on the matter.