Exercises with the Basic Model
Remembering that we are always talking about comparisons between economic systems in steady tranquil conditions we can make some simple statements about the effects of different variables on the performance of the economic system. The systems we will be considering realise conditions of tranquillity as outlined above. The accumulated stock of capital equipment is appropriate to conditions actually ruling and, most importantly, expectations are continually being realised. Technical progress, when it exists, is assumed to occur at a steady rate so that large shifts in the spectra of available techniques do not disturb expectations or tranquility. New techniques are introduced in the gross investments being made each period. Thus at any point in time in the system where technical progress occurs there will be a number of different machines existing which were produced at different levels of technical knowledge. This causes no particular problem for the analysis as long as technical progress is, on balance, neutral, and the real wage per man rises in step with increasing output per man. These assumptions assure that the proportion of investment to total output is unaffected by technological progress, and therefore the ruling pattern of prices and rate of profit will be constant as the system moves along the path of steady growth.
KeywordsLabour Force Technological Progress Real Wage Technical Progress Consumption Good
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