Saturday, June 21, 2014

The Arthurian — Growth Modeling: The Asymptotic Decline of Output

Let's take this model that captures the pure impact that "savings = investment" has on the long run standard of living, let's take it and tweak it a tad. Let's NOT suppose there are no financial markets…. 
The assumption that financial markets exist has two effects on the Solow Growth Model: It makes growth slower and costs higher. The rate of growth is reduced, because productive investment is reduced. And productive sector costs increase, because income accrues to savings.
Growth is slower and costs are higher, because financial markets exist. Sounds like a stagflation problem, don't you think?. Lucky for us, this is only a model.
The New Arthurian Economics
Growth Modeling: The Asymptotic Decline of Output
The Arthurian

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