The Balanced-Growth path and theory of economic growth

The Balanced-Growth Path

In economist's typical ‘growth model’ the kind of equilibrium they study is balancedgrowth equilibrium. In balanced-growth equilibrium, capital intensity of the economy, its capital stock divided by whole outputis constant. Although, other variables like capital stock, real GDP, and output for each worker are increasing.

Economists use typical model to estimate the balanced-growth path. They then approximate that if economy is on this way, it will develop along this way. And they estimate that if the economy isn’t on its balanced growth path, it will head towards that path.

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