THE STABILITY OF GROWTH MODELS.

The purpose of this article is to explore more fully the nature of the equilibrium in simple models of economic growth. Two problems are investigated that have not been fully explored before namely effects of introducing explicit assumptions about producers' expectations and the problem of the full utilization of the capital goods produced. Models studied are the simple model that was introduced by economist R.F. Harrod and the modification of this model that was suggested by economist J.R. Hicks. In the original model, Harrod assumes that consumption depends only upon current income, whereas investment depends upon the difference between current income and last period's income. According to this model, the national income must always grow at a rate that Harrod calls the warranted rate. However, Harrod considers his model to be very unstable because any departure from the warranted rate of growth will be followed by an even greater departure from this rate, instead of being followed by a return to the warranted rate. In his explanation of this instability, Harrod is forced to depart from his original model and consider the role of producers' expectations and the possibility of unintended investment.