Chapter 8- Solow Model

Question 1

Solow Model

Answer 1

begins with production function(relationship between output and the factors of production)
Y(output)= F A(ideas), K(physical capital), eL(education times labor)
basically says economies rely on a combination of physical capital, labor/education, and ideas
diminishing returns- when K increases the first time, there is a large gain but as K continues to increase the gain gets smaller, thus establishing diminishing returns

Question 2

Solow Model and Capital Growth

Answer 2

capital is output that is saved and invested