# Simple model to understand r and g relationship | Summary and Q&A

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April 23, 2019
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Simple model to understand r and g relationship

## TL;DR

Analyzing the relationship between the return on capital (R) and economic growth (G) through a spreadsheet model to understand its impact on income distribution.

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### Q: How does the return on capital (R) and economic growth (G) impact income distribution?

When R exceeds G, the income going to capital as a percentage of the total income increases, which can suggest rising inequality. However, the income going to labor also increases.

### Q: How is the income to capital calculated in the spreadsheet model?

The income to capital is calculated by multiplying the return on capital by the amount of capital in the economy, which gets reinvested as capital in subsequent years.

### Q: Can you explain the significance of the percentage of capital in the total income?

The percentage of capital in the total income reflects the concentration of income among capital owners, potentially indicating inequality in the distribution of wealth.

### Q: How does the model account for economic growth?

Economic growth is factored into the model by adding the growth rate to the previous year's national income, demonstrating its impact on income distribution over time.

## Summary & Key Takeaways

• The spreadsheet model examines the relationship between R and G to determine how it affects the distribution of national income between capital and labor.

• By assuming specific values for R and G, the model calculates the income to capital and income to labor, as well as the percentage of capital in the total income.

• The model demonstrates how when R is greater than G, the income going to capital as a percentage of the total income increases, potentially indicating increased inequality. However, the income going to labor also increases.