Lecture Notes: Maturity and Stagnation Josef Steindl AC14446155
LECTURE NOTES: MATURITY AND STAGNATION J^^Sir Roy^ Harrods theory is a good starting point for an explanation of maturity. a i gebra In the following his XKMXjf is a tiny bit complicated by introducing the concepts of capacity and NKX utilisation. * . V We define: Y output volume (i.e. its value in constant prices) K capacity output ( as above) 2 u= Y /K degree pf utilisation ^ v= I/A K marginal capital coefficient ^&lt;zZ-cofr&t* Writing each variable with a subscript t we make them all depend on time. We £btain + K*Au t (-,) XK% k Kt = (1/U t (A u t /u t ) K| (£) I t = v^K| i t = f v / u t )^Xf " V (A u t/ u t^ K t I t = s t = sY^ T^jh propensity to save s and the capital coefficient v are assu med to be constants, dividing the last *wo equations we obtain (v/s u t )(A^t) = 1 + (v/s)^u t / u t ^ A Y t/ ^t =(f/ v ) u t + A V u t (4) It follows that if the actual growth rate (left side) is smaller than the warranted growth rate^s/v^u^. at a given rate of utilisation - say, at the normal or desired rate - than the rate of utilisation will hatre to decline. Harrod deals with the case where the rate of growth cannot surpass a certain level for lack of manpower -the so-called natural rate of growth - and where consequently and unemployment the system is driven into dBpression^because the low rate of utilisation will discourage private investment. This is a description of maturity even though this term is not used by Harrod .