I'm missing something here, I don't know how to derive the vector forces for this system of differential equations show in the picture. It is explained in the picture, but I don't get the parts that I marked in orange (... which implies that k < k* ...). Also, how do you know c_dot = 0 is a vertical line and not a horizontal one. How do you know are A2 is where c_dot > 0? Where is the unstable arm?

What they say at the bottom of the page that K=capital <-> k = K/L in the steady state is that is decreasing at the same rate as the labor force (=n), I guess?

Is it possible to linearize these differential equations and derive the solutions analytically assuming log utility (e.g. as a percentage deviation from the steady state)? How would you start this?


enter image description here


Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Browse other questions tagged or ask your own question.