ABSTRACT
This chapter looks at account changes over time in the capital stock and considers the effects of unanticipated non-monetary shocks. It discusses the production side of the economy and a short-run perspective and ignores changes over time in the capital stock and stock of real bonds. The chapter presents the changes over time in the capital stock and stock of real bonds are taken into account. It analyzes the impact, dynamic and long-run effects of the some shocks and the role of international migration of labour in the results. The production of output uses the services of homogeneous labour and homogeneous capital while the production of installed capital requires part of the economy’s production. Firms in the domestic economy operate under conditions of perfect competition and pursue maximisation of profits. The left-hand side of gives the supply of domestic output available for consumption, while the right-hand side gives the demand for domestic output for consumption purposes.
