Explain How the Solow Growth Model Would Analyse the Effects of a Fall in the Household Saving Ratio.
PART 1
Explain how the Solow growth model would analyse the effects of a fall in the household saving ratio.
In this essay, I will focus on two important aspects. The first is to give a brief historical outline of the Solow growth model. The second thread runs express how the outline on the Solow growth model might explain the effect of a fall in the household savings ratio.My essay will be guided by the diagram provided on which I have to make specific references and to think through as well as explain the various steps of the Solow growth model and what this would mean for economic growth.
Without dismissing earlier attempts, the foundations upon which modern economic growth theory rests on the foundations put by US economist Robert Solow (1924-) in the 1950s and 1960s.The Solow growth model is very neoclassic in that it focuses primarily on the supply side. The Solow model seems to implicitly assume that, as long as the supply of goods increases, economic growth can be attained. In this way it is apparently different from Keynesian models of which focus is on the demand side of the economy such as inflation and unemployment. One of the major central reason by Solow to come up with the Solow model came from the desire to know what happens in the long run to an economy in which capital accumulation is taking place. In pursuit of an answer to this question Solow came up with a degree of mathematical and analytical work. Solow pursued a model of an economy in which one has a single good that can be consumed or invested, and he says the total output in the economy Y to the total labour supply L and the stock of physical capital K. When Solow talked of physical capital he meant things like machinery, buildings, equipment, things used by labour to make products. The aggregate measurement of output is symbolised by (Y), labour (L) and capital (K). This means that Y,L and K are variables describing the whole economy.
The Solow growth model tells us
Explain how the Solow growth model would analyse the effects of a fall in the household saving ratio.
In this essay, I will focus on two important aspects. The first is to give a brief historical outline of the Solow growth model. The second thread runs express how the outline on the Solow growth model might explain the effect of a fall in the household savings ratio.My essay will be guided by the diagram provided on which I have to make specific references and to think through as well as explain the various steps of the Solow growth model and what this would mean for economic growth.
Without dismissing earlier attempts, the foundations upon which modern economic growth theory rests on the foundations put by US economist Robert Solow (1924-) in the 1950s and 1960s.The Solow growth model is very neoclassic in that it focuses primarily on the supply side. The Solow model seems to implicitly assume that, as long as the supply of goods increases, economic growth can be attained. In this way it is apparently different from Keynesian models of which focus is on the demand side of the economy such as inflation and unemployment. One of the major central reason by Solow to come up with the Solow model came from the desire to know what happens in the long run to an economy in which capital accumulation is taking place. In pursuit of an answer to this question Solow came up with a degree of mathematical and analytical work. Solow pursued a model of an economy in which one has a single good that can be consumed or invested, and he says the total output in the economy Y to the total labour supply L and the stock of physical capital K. When Solow talked of physical capital he meant things like machinery, buildings, equipment, things used by labour to make products. The aggregate measurement of output is symbolised by (Y), labour (L) and capital (K). This means that Y,L and K are variables describing the whole economy.
The Solow growth model tells us
References: BIBLIOGRAPHY Brown, W. (2009) “Reordering the International”, The Open University, Walton Hall, Milton Keynes, MK7 6AA. Bromley, S., Mackintosh, M., Brown, W., Wuyts, M. (2004) “Making the International: Economic Interdependence and Political Order”, London, Pluto Press Brown, W., Huysmans, J., Bromley, S., (2010) “A World Of Whose Making: Audio CDs & CD- Roms”, Number 3,The Open University. PAGE PAGE PAGE 1