Chapter 2 The AK Model

Harrod and Domar emphasize, capital is the limiting factor. Firms will produce the amount Y = AK; and hire the amount (1=B)Y = (1=B)AK<Lof labor. Now, with a –xed saving rate, we know that the capital stock will grow according to the same equation as in the neoclassical model: K_ = sY K: (1) These last two equations imply: K_ = sAK K;

  Rates, Factors, Savings, Saving rate