Technical discussion of capital, consumption, and growth balance in economic model

(4.5) shows something about “balance” or the state where capital, consumption and output grow at the same rate. It confirms the standard teaching that balance is possible, although not compelled, when growth rate is constant. It also shows that balance is impossible when growth rate changes. No one disputes that capital productivity (output/capital) always leads, and consumption rate (consumption/capital) always lags, in accelerations up and down. Output gets the bad news first and the good news first. What the equations leave unspecified is where capital itself joins the sequence. That is what the evidence in the charts and tables tells us. In the case where the free growth index equals one, for example, the above equations show thrift gain thrift index = —=0, implying acceleration — change in consumption rate thrift gain = change in growth rate =0, and change in consumption rate =0, or equivalently consumption consumption rate = oo = constant, (4.7) capita if acceleration is non-zero. (The reason for that qualifier is that zero acceleration means zero change in growth rate, and division by zero is a no-no.) In the opposite case where the thrift index is one, the same equations would show free exerts idles = productivity gain _ changeinproductivtyrate _ acceleration change in growth rate Chapter 4 Mill’s Idea 1/11/16 14 HOUSE_OVERSIGHT_011005