Question

Write a note teaching the Solow model to a high school student in your own words. Explain what we are trying to understand, why we write a model, what a model is, and what insights the Solow model affords us. Also note a few important (to you) issues that the model gets wrong or is silent about.

2. Derive the rule of motion for per-capita capital for the simple discrete time Solow model we studied in class. Explain it. Write down the condition for steady state, explain that as well. Then draw the two in a graph and explain convergence to steady state and growth rate differentials at various levels of income. If the Turkish fundamentals stay the same, what implications does this have about the average rates of growth over time?
3. Look up the Penn World Tables and the PISA results. Use them to tell a story about Turkey, South Korea and one other country you are interested in. How have their average investment and population growth rates, educational attainment, and income per capita covaried?

Answer 1

The Solow model is an economic model used to understand factors that contribute to economic growth and the relationship between capital accumulation and economic output.

Step-by-step explanation:

The Solow model is an economic model that helps us understand the factors that contribute to economic growth and the relationship between capital accumulation and economic output. The model is used to analyze how changes in investment and population growth affect the long-run growth rate of an economy.

In the Solow model, we assume that there are diminishing returns to capital, meaning that as more capital is accumulated, the additional output generated by an additional unit of capital decreases. This leads to a steady state level of per-capita capital, where the capital stock remains constant over time.

The rule of motion for per-capita capital in the simple discrete time Solow model is given by the equation: Δk = s*f(k) - (n+g+d)k, where Δk is the change in per-capita capital, s is the savings rate, f(k) is the production function, n is the population growth rate, g is the technological progress rate, and d is the depreciation rate. The condition for steady state is when the change in per-capita capital is zero, meaning that investment equals depreciation and population growth.

In a graph, the y-axis represents per-capita capital and the x-axis represents time. The steady state is represented by a vertical line where per-capita capital remains constant. The convergence to steady state occurs when the economy moves from an initial level of per-capita capital towards the steady state level. At various levels of income, the growth rate differentials can be observed by looking at the slope of the line connecting two points on the graph.

If the Turkish fundamentals, such as the investment and population growth rates, remain the same, it implies that the average rates of growth over time will also remain the same. However, it is important to note that the Solow model is static and does not account for factors such as changes in technology, institutions, or policy that can affect long-term economic growth rates.