OPTIMAL ECONOMIC GROWTH AND WEALTH EFFECTS.

Abstract : The presence of wealth effects is shown to be a possible cause of the appearance of 'Saddle points' or multiple stationary solutions for the optimal path of economic growth. The importance of this fact is that it tends to narrow down the range of economic growth prescribed by the optimal path. This is so since starting from a fixed initial condition, and then having a multiplicity of stationary solutions may lead to the appearance of a relatively 'close' point towards which the optimal path converges.