1.1 AK Diode] Consider the production function 1' (t) : AK (t) which is linear in the aggregate capital stoclt. Assume population grows at rate 31. Denoting percapita variables with small letters. the growth rate of output per capita is therefore 3; it) _ k (t) y ti E (ti equal to the growth rate of capital per capita. The Solow growth equation. in per capita terms. is k e) : 3.4!: a) _ (a +31)k(t) Mr) m) which means that both capital and output grow permanently at a constant rate 3.4 _ [(3 + n) 9y 23A _[5+n). As long as 5.4 :7 (5 + R) this economy displays positive longrun growth. notwithstanding the absence of exogenous productivity growth. This class of models where output per capita grows without the need of exogenous technical progress are called endogenous growth models. Notice that this AK (linear) economy is a limiting case of the Solow model as the capital share Cl _} l. \"'hen Cl : 1. the decreasing returns in production which are the force that impede permanent growth in the standard Solow model. disappear and output is produced with constant returns to capital