Advanced Macro & Growth · intro
What moves on the Endogenous Growth (AK Model) diagram
Raising A rotates the s·A·k line up. With no diminishing returnsdiminishing returnsEach extra unit of an input adds less output than the one before, holding other inputs fixed., the growth gap widens permanently: policy moves the growth rate itself.
In the AK world, output is proportional to capital broadly defined: machines, skills, ideas.
R&D tax credits raise the productivity of every unit of that capital.
The saving line rotates up while break-even stays put.
The gap between the lines IS the growth rate, and it just widened permanently. Not a level effect: a growth effect, forever.
Examiners ask this as: r&d subsidy, research tax credit, innovation policy, ideas boom, patent boom.
Other scenarios on Endogenous Growth (AK Model)