LONG TERM-PRICE ADJUSTMENT IN A TWO-SECTOR HARROD GROWTH MODEL
Abstract
A simplified model that reflects Harrod's view of the world is presented. The natural (n) and warranted (k) rates of growth are defined as follows: (1) full employment equilibrium can exist even if n and k are not equal; (2) if the natural rate of growth is lower than the warranted rate of growth there will have to be a long term decline in the price of capital, a long term increase in the wage rate and a constant interest rate but lower than the rate of return on capital. When n is greater than the converse will have to happen; (3) the peculiarity of the equilibrium is that it places the system on a terminal path automatically. For any initial conditions (satisfying the equilibrium condition (11)) the system is placed on a terminal path whose level is obviously not unique; and (4) an increase of the savings ratio will increase the rate of growth of output. Acceleration of the rate of growth of output by raising k may lead to a negative interest-rate which may cause a constant inflation in an expanded model which contains a financial structure. (Author)
Document Details
- Document Type
- Technical Report
- Publication Date
- Dec 04, 1961
- Accession Number
- AD0268918
Entities
People
- Mordecai Kurz
Organizations
- Stanford University