The Neoclassical Model of Growth

Consider the diagram below. Suppose that technology, A, is given, and assume further that a fixed proportion, s, of income is invested each period. In this case, per capita income converges on the equilibrium level y*. This is because, below y*, the investment of sY in capital leads to a

rise in Y/L; the opposite holds above y* owing to the law of diminishing marginal utility
rise in A; the opposite holds above y* because of diminishing returns to research & development
rise in Y/L; the opposite holds above y* owing to the diminishing productivity of capital (given labour)
rise in A; the opposite holds above y* owing to diseconomies of scale

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