Solow Growth model

Rossi- We try to observe and model choices. Rationalise why choices are made.

Try to understand a choice at a margin

Relative prices explain choices.

Assumptions

Per capita income and investment rate are positively correlated

Per capita income and population growth rate are negatively correlated

Solow model predicted increases in technological progress are needed for sustained
increased of standards of living.

N(Prime) – Population tomorrow.

Consumers are assumed to save a constant fraction s of their income, consuming the rest.

C= (1-s)Y (Simplified version NO GOVERNMENT SPENDING, NO INTERNATIONAL

MARKETS)

 K= Capital
 N= Labour

Y= zF(K,N)
No UNEMPLOYMENT IN THIS MODEL. SO N (POPULATION), Becomes W (Workers)

If N (Population)= 0
Only depreciation (d) has to be replaced to remain in a steady state. I.e 10%.
Using Y=zF(K,N)