Solow Flashcards
assumptions of solow (5)
The key assumptions are:
* constant returns to scale production function;
* diminishing returns to each factor of production;
* the savings and depreciation rates are exogenous;
* a closed economy;5
* total factor productivity is exogenous.
Solow story for during and after war
The Solow story would be the following: during World War II, a lot of physical capital was destroyed (as were other resources). As the capital stock fell, the marginal product of capital rose. With constant depreciation, this implies high economic growth rates; this is shown as growth rates accelerated from 1950 to about 1980; however, as these countries continued to accumulate capital, the MPK began to fall relative to the depreciation rate
what is K
(sA/d)^1-1-alpha
what is y
a(k*)^alpha