Factors And Complications Of The Solow Growth Model

Decent Essays
Major: International Management
Full Name: Xiaoxiao Wan
Course name: Global economics for international managers
Student Card Number:17234041
Lecturer: Benjamin Breen

Global economics
The Solow Growth Model id declared by Robert Solow. He developed the neo-classical theory of economic growth and won the Nobel Prize in Economics in 1987. This theory is contributed to helping economists to understand the characters that impact the growth rate for different nations and regions (tutor2u, 2017)
The Solow Growth Model is a model of capital accumulation in a pure production economy: there are no prices because we are strictly interested in output = real income. Everyone works all the time, so there is no labour/leisure choice.
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Foe the effectiveness of per labour force in steady state would lead to a balanced economic growth of per capita income. In light of Solow growth model, every individual character can have an impact on economic growth in specific region or nation. Therefore, we can evaluate the separate effects via Solow growth model.
In terms of variables of the Solow growth model, this analysis approach hypotheses GDP is generated in light of overall production function technology. Speaking of GDP, what we really need to focus on, is the growth rates, take one simple example, told GDP was up by 7 million euros, that may seem like a huge amount, but if we measure it from the whole range of GDP, it is a piece of artificial news. Therefore, that is the reason why we concentrate on
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1.The first factor refers to people spend how much money for savings. To give a specific and the simplest example, we presume human beings spend 1/4of income for savings, that is to say ,25percentage of income in total. Therefore, we can conclude: s = 0.25 q
2.The second factor refers to if the economy growth derives from capital aggregation, the economy will show a steady state, that is to say, an equilibrium. The state of economy will stay the steady state. When it is ample to take place the depreciated capital stock savings. Presuming when it comes to the depreciation of capital stock in each stage entirely, we can deduce: s = k
Note that if depreciation were only 10 percent of capital stock, the equilibrium condition would be s = 0.10 k . Although this is a more realistic figure for yearly depreciation, we assume 100 percent depreciation for simplicity -- and if you are troubled by the lack of realism, you may think of our time periods as decades rather than years. (,2017)
If we make A=100 and a=0.5 every capita production function in the Solow growth model, we can conclude that: q = 100 k
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