Solo-Swan Model

Question 1

Steady State

Answer 1

sAF(K * ,L) = δK *

Economy will stop growing once economy reaches steady state as depreciation will exceed investment

Question 2

Output per Effective Worker

Answer 2

y = Y/(A×L)

Question 3

Total Factor Productivity Growth

Answer 3

At+1/At = 1 + gA

Question 4

Labour Force Growth

Answer 4

Lt+1/Lt = 1 + gL

Question 5

Capital Accumulation

Answer 5

kt+1 – kt = sYt – δkt

Question 6

Convergence Hypothesis

Answer 6

Prediction that countries should grow faster when it is far below its steady state, and should grow slower when it is closer to its steady state

Question 7

Effective Investment and Effective Depreciation

Answer 7

Steady state: sf(k * ) = (δ+gA+gL) k *

Effective investment: sf(k * )
Effective Depreciation: (δ+gA+gL) k *

Question 8

Growth in Solow-Swan (Not per Effective Worker)

On Formula Sheet

Answer 8

gY = gA + αgK + (1 − α) gL

Question 9

Growth in Solow-Swan (Per Effective Worker)

Answer 9

g = s × (y/k) - δ

Question 10

Consumption in Solow-Swan

Answer 10

C* = (1 – s) × Y*