Solow Model

Question 1

Solow model production function

Answer 1

Y = AK^(α)L^(1-α)

Question 2

Solow model basic equations

Answer 2

Y = AK^(α)L^(1-α)
S=sY
S=I
ΔΚ= I- δK
ΔL/L = n
k=K/p
y=Y/p

Question 3

Derive change in capital in steady state

Answer 3

Δk=0 in steady state
Δy= Ak^α(t+1) - Ak^α(t) = 0
Ie the change in capital per capita year on year
kt+1 = kt
Δk=0
0=Δk= sAk^α - (δ+n)k

Question 4

Cooordination failure

Answer 4

Mutually better outcome, however either miscommunication or first mover cost means people don’t

Question 5

Change in capital Solow model Δk

Answer 5

Δk=sy -k(δ+n)

Question 6

Convert Δk = sy - (δ + n)k
To incorporate A / α

Answer 6

Δk = sAk^α - k(δ + n)