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Properties Of Steady State Growth

 Steady State Growth


The conception of steady growth is the corresponding item of long run symmetry in state thesis. It is reliable with the concept of symmetry development. In steady state growth all variables such as productivity, population, capital stock, saving, investment and technical progression either grow at steady exponential rate or are steady.

Taking diverse variables, some of the new-classical economists have given their explanation to the notion of steady growth. To start with Harrod, a fiscal system is in a state of steady growth when Gw = Gn.

As per Meade in a state of steady growth the growth rate of aggregate earnings and the growth rate of earnings per head are invariable with population growing at an invariable ration rate, with no variation in the rate of technical progression.

Properties of Steady State Growth

The neo classical thesis of fiscal development is concerned with scrutinising of properties of steady state growth depending on the following basic postulations of the Harrod Domar model.

  1. There is only one compound product which can eb consumed or utilised as a raw material in manufacturing or can be collected as a capital stock
  1. Labour force builds up at an invariable proportional rate n
  1. Full employment triumphs at all phases
  1. Capital – productivity ratio v is provided
  1. Saving – earnings ratio s is invariable
  1. There are predefined coefficients of manufacturing. In other terminology there is no feasibility of the substitution of capital and labour
  1. There is no technical variation (m)

             The neo classical development models talks about the properties of steady rate growth by integrating and relaxing these postulations

              In order to talk about the properties of steady state growth we first analyse the Harrod Domar model in a few words

        The Harrod Domar model is not a steady state growth model where Gw (=s/v) = Gn (=n+m). It is one knife corner balance among accumulated inflation and collected deflation. It is only when the warranted growth rate s/v equals the natural rate of growth n+m that there will only be steady state growth.

         But s,v,n and m being independent invariables, there is no valid ground for the fiscal system to grow at full employment steady state.

Functions Assigned to Neo-Classical Growth Society

  1. Flexibility of n
  1. Flexible Capital Productivity Ratio v
  1. Flexibility of Saving Ratio s
  1. Flexible Saving Ratio s and Flexible Capital Productivity Ratio v
  1. Technical Development
  1. Flexibility of n

    Economists like Joan Robinson and Kahn have depicted that the non-absence of redundancy is well-matched with steady growth. So the presumptions of the progress rate of labour force at full employment are dropped.

    In its place it is replaced by the stipulation that the progress rate of employment should not be higher than n. For steady progress it is not necessary that s/v = n.

    Quite, symmetry progress is well-matched with s/v = n. This is what Kahn calls a bastard golden age as in opposition to Joan Robinson’s golden age where s/v = n. In this age capital stock is not progressing speedier for the reason that inflationary pressures. Rising prices mean a lower real wage rate. When the actual remuneration rate is at the bearably least level, it sets a limit to the rate of capital collection.

  • Flexible Capital – Productive Ratio v

    Hypothetically the Harrod Domar presumption of a constant capital productivity ratio means that the volume of capital and labour necessary to manufacture a unit of production are predefined.

    The neo-classical economists assume a continuous manufacturing function connecting productivity to the raw materials of capital and labour. The other presumptions of invariable returns to scale no technical development and invariable saving ratio are retained.

    Solow swan depict that for the reason that the substitutability of capital and labour and by enhancing the capital labour ratio, the capital productivity ratio can be enhanced and therefore, the warranted rate s/v can be made equal to the natural rate, n+m. if the warranted growth rate surpasses the natural growth rate, the fiscal system tries to break through the full employment hindrance, thus making labour more expensive in relation to capital and making incentives to move to labour saving techniques.

    This enhances the capital productivity ratio and the value of s/v is diminished until it overlaps with n+m. if otherwise, the warranted progress rate is less than the natural growth rate there will be excess labour which reduces the actual remuneration in association to the actual interest rate.

    Resultant, more labour intensive techniques are chosen which diminishes the capital productivity ratio v thereby increasing s/v. This procedure lasts till s/v parities n+m. Therefore, it is the capital productivity ratio which upholds the steady rate progress single handed whilst s,n and m remain invariable.

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