9 THE SOLOW-SWAN GROWTH MODEL
9.1 ECONOMIC PROBLEM
In the preceding chapters while studying Keynesian macroeconomic dynamics (Chapters 4 and 5), we looked at the economy in the short-run where the capital stock was held constant even when the level of investment increased (or decreased). This was indeed one of the inconsistencies in Keynes’s General theory [5] as pointed out by Pigou [6]. Any change in aggregate investment has two effects on the economy – one on the demand side and other on the supply side. The demand side impact is well known as the multiplier effect, where changes in investment lead to a change in output through a multiplier. However, the change in investment also leads to a change in the ...
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