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Moreover the constancy of v is

The ratio of physical capital to output is nearly constant. Thus, aggregate output is a function of the total stock of capital and the labour force. The shares of labour and physical capital in national income are nearly constant. The return to capital is constant, or at least shows no definite trend over time.

Moreover, the constancy of v is a reasonable assumption in short run but not in the long run. Natural resources, such as land, are sometimes incorporated as a third factor, but most often are subsumed as part of the capital stock. This is precisely the reason why this model has been extensively used in developing countries for economic planning.

Changes in capital stock K over time are determined by two factors- new investment which adds to the capital stock and depreciation which slowly erodes the value of existing capital stock over time. No technical progress can occur without accompanying investment.

The intersection of the investment line and the saving curve in Fig. But these agreements are only one side of their relations and China and India increasingly appear to be locked into a dynamic of rival alliance construction. This conclusion emerges due to the absence of diminishing returns. Saving depends on i the fraction of national income that is saved, and ii the level of national income.

This would correspond to a point to the left to the steady-state point in Fig. Dividing both sides of eqn.

Natural resources such