Question:
GENERAL ASSUMPTIONS
Author: Angelie BayabanAnswer:
• A full-employment level of income already exists. • The model is based on the assumption of “closed economy.” In other words, government restrictions on trade and the complications caused by international trade are ruled out. • The model assumes constant returns to scale for the capital-output ratio and the propensity to save. • Investment is net, that is, gross investment minus depreciation. Thus, the capital stock changes by net investment.
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