Solow Model

Question 0

What is the relationship between savings, GDP, consumption and investment?

Answer 0

C = (1-S) Y I = sY

Question 1

What is the key capital accumulation equation?

Answer 1

k*/k = sf(k)/k - (n + d ) And k*= sf(k) - (n + d)k

Question 2

How do you determine consumption if you have k* and y*?

Answer 2

c* = (1-s)y*

Question 3

If you have two policies that both give you the same k*, which policy makes people better off?

Answer 3

Check which one allows more consumption for capita.

It will be the policy that has lower savings since

c = (1-s)y*

Question 4

What is the formula for lambda?

Answer 4

lambda = (1-etak)*(n+d+g)

the higher your capital share the slower your covergence rate

Question 5

What is the starting point for deriving K* growth rate?

Answer 5

K*=0 so

0 = s*F(k)-(n+d+g)*k

Remember the k’s!