Dynamics of Prices

Abstract

Suppose that new technologies are invented in the heterogeneous economy with capital from Sections 6.7 and 6.8. These technologies offer a leap-like increase in productivity, as it is shown on Figure 7.1. However, at the same time, such progress must be paid for by investments in new equipment, which new capital-per-head ratios are the following:

• 45 units of capital per head in the bread industry instead of 25;

• 70 units in the butter industry instead of 35;

• 90 units, instead of 50, in the fixed capital industry that provides capital for all the industries including itself. At that, the first units of new capital are produced by old, existing capital; and

• Capital lifetime is seven years instead of ten.