+1 862 207 3288 An economy with technological progress ultimately reaches the steady state and in the steady state, the capital per effective worker and thus the output per effective worker is constant. But, if we let y as the output per effective worker, then, y is given as:
y = Y/(L × E)
Then, output per worker is given by
Y/L = y × E
Since E is growing at rate g, y × E and hence Y/L is growing. Hence, output per worker and thus the income per person is growing at the rate g. This explains the long term sustained growth in the income per person. Also, total output is given by:
Y = y × (E × L)
Since E is growing at the rate g and L is growing at the rate n, hence E × L is growing at the rate n + g. Thus, the output is growing at the rate n + g.
Hence, the increase in capital stock due to increase in savings rate leads to temporary increase in growth rate. The population growth leads to sustained increase in total capital.
