To see why Figure 1 poses a problem for the corlventiorlal analysis, consider a very simple version of the neoclassical model. Let output take the simpleCobb-DouglasformY=A(~)K'-~ILn~th.isexpression,Ydenotesnet rlatiorlal product, K denotes the stock of capital, L denotes the stock of labor, and A denotes the level of technology. The notation indicating that A is a function of time signals the standard assumption in neoclassical or exogenous growth models: the technology improves for reasons that are outside the model. Assume that a constant fraction of net output, s, is saved by consumers each year. Because the model assumes a closed economy, s is also the ratio of net investment to net national product.