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Created 3/10/1998
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Long-Run Growth: Convergence to the Steady State

J. Bradford DeLong
delong@econ.berkeley.edu
http://www.j-bradford-delong.net


You can use the economy's aggregate production function and your knowledge of the steady-state capital-output ratio to figure out where the economy is heading. If the ratio of output to capital is higher than in steady state, then the capital stock per worker must be growing--and the economy must be moving up and to the right along its production function graphed with capital per worker on the horizontal and output per worker on the vertical axis.

The economy's steady-state--the point toward which it will head, and at which it will remain-- is that point on the production function where the output-to-capital ratio (and the capital-output ratio, its inverse) is equal to its steady-state value.

The Steady-State Capital-Output Ratio   Technological Change  


Professor of Economics J. Bradford DeLong, 601 Evans Hall, #3880
University of California at Berkeley
Berkeley, CA 94720-3880
(510) 643-4027 phone (510) 642-6615 fax
delong@econ.berkeley.edu
http://www.j-bradford-delong.net/

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