Re: Relation between interest, inflation and growth rates

From: Robert Vienneau (rvien_at_see.sig.com)
Date: 11/29/04 

Date: Mon, 29 Nov 2004 02:29:38 -0500

In article <ddf84d5a.0411271016.5d178349@posting.google.com>,
vinodh.poyyapakkam@gmail.com (Vinodh) wrote:

> Thanks for the postings. Robert - I have a question based on your
> post. So, in an ideal world, the real interest rate should be equal to
> the growth rate of that economy ? What do you think are the
> ramifications of this if this idealistic condition happens ?

I refer to the "golden rule of growth".

Compare steady states, given technology. I restrict myself to models
in which the interest rate is equal to the rate of profits along a
steady state growth path.

Technology is a set of techniques. Which technique is cost-minimizing
depends on the interest rate. When the interest rate equals the
rate of growth, the cost-minimizing technique is such that
consumption per worker is maximized. It is an efficiency criterion. 

-- 
Mostly economics:  <http://www.dreamscape.com/rvien/#PublicationsForFun>
r           c
 v         s a           Whether strength of body or of mind, or wisdom, or
  i       m   p          virtue, are found in proportion to the power or wealth
   e     a     e         of a man is a question fit perhaps to be discussed by
    n   e       .        slaves in the hearing of their masters, but highly
     @ r         c m     unbecoming to reasonable and free men in search of
      d           o      the truth.    -- Rousseau

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