《宏观经济学》南开大学-Domar Model.ppt

* DOMAR GROWTH MODEL The Framework The basic premises of the Domar model are as follows: 1. Any change in the rate of investment flow per year I(t) will produce a dual effect: it will affect the aggregate demand as well as the productive capacity of the economy. 2. The demand effect of a change in I(t) operates through the multiplier process, assumed to work instantaneously. Thus an increase in I(t) will raise the rate of income flow per year Y(t) by a multiple of the increment in I(t). The multiplier is k=1/s, where s stands for the given (constant) marginal propensity to save. On the assumption that I(t) is the only (parametric) expenditure flow that influences the rate of income flow, we can then state that ( 1 ) 3. The capacity effect of investment is to be measured by the change in the rate of potential output the economy is capable of producing. Assuming a constant capacity-capital ratio, we can write ( = a constant ) where (the Greek letter kappa) stands for capacity or potential output flow per year, and (the Greek letter rho) denotes the given capacity-capital ratio. This implies, of course, that with a capital stock K(t) the economy is potentially capable of producing an annual product, or income, amounting to dollars. Note that, from (the production function), it follows that , and ( 2 ) In Domars model, equilibrium is defined to be a situation in which productive capacity is fully utilized. To have equilibrium is, therefore, to require the aggregate demand to be exactly equal to the potential output producible in a year; that is, . If we start initially from an equilibrium situation, however, the requirement will reduce to the balancing of the respective changes in capacity and in aggregate demand; that is ( 3 ) What kind of time path of investment I(t) can satisfy this equilibrium condition at all times? Finding the Solution To answer this question, we first substitute (1) and (2) into the equilib