We are now ready to start our analysis of the standard neoclassical growth model (also known as the Ramsey or Cass-Koopmans model).

This model differs from the Solow model only in one crucial respect: it explicitly models the consumer side and endogenizes savings. In other words, it allows consumer optimization. Beyond its use as a basic growth model, this model has become a workhorse for many areas of macroeconomics, including the analysis of fiscal policy, taxation, business cycles, and even monetary policy.

Since both the basic equilibrium and optimal growth models in discrete time were already presented as applications of dynamic programming in Chapter 6, this chapter focuses on the continuous time neoclassical growth model (returning to discrete time examples in exercises).

8.1.