The Ramsey-Cass-Koopmans model is the workhorse of this chapter. A representative household chooses consumption over an infinite horizon, with capital as the only state variable. Equilibrium traces a saddle path in the consumption-capital plane. The first several handouts stay inside that framework and add pieces to it: government purchases and taxation, and a decentralization that lets competitive markets reproduce the planner’s allocation.
We then turn to the model’s central embarrassment. Unless productivity growth arrives from outside, the model predicts no long-run growth in per capita income at all (the thing it was built to explain enters as an assumption). The endogenous growth literature answers by finding some factor that households can accumulate without bound, and the handouts on Romer, Rebelo, and Lucas each pick a different candidate. A final handout swaps the infinitely lived household for Blanchard’s perpetual youth structure, which restores a finite planning horizon while keeping the model tractable.