dr d/1 dt dt s 3. The capacity effect of investment is to be measured by the change in the rate of potential output the economy is capable of producing. Assuming a constant capacity-capital ratio, we can write K K p (=a constant where k (the Greek letter kappa) stands for capacity or potential output flow per year, and p(the greek letter rho) denotes the given capacity-capital ratio. This implies, of course, that with a capital stock K(t) the economy IS potentially capable of producing an annual product, or income amounting to K= pk dollars. Note that, from K=pKdt s dI dt dY 1 = ( 1 ) 3. The capacity effect of investment is to be measured by the change in the rate of potential output the economy is capable of producing. Assuming a constant capacity-capital ratio, we can write    K ( = a constant ) where (the Greek letter kappa) stands for capacity or potential output flow per year, and (the Greek letter rho) denotes the given capacity-capital ratio. This implies, of course, that with a capital stock K(t) the economy is potentially capable of producing an annual product, or income, amounting to dollars. Note that, from     K   K