Implications of Solow

Implications of Solow - Implications/predictions of the...

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Page 1 of 6 Implications/predictions of the Solow model. The Solow growth model suggests the following: I) Country with higher saving rate ( s ) enjoys higher GDP per capita in the long run. II) Two countries with the same initial aggregate capital stock ( K ), the country with higher saving rate grows faster. III) Two countries with the same saving rate ( s ), the country with lower initial aggregate capital stock grows faster. IV) Country with lower population growth rate enjoys higher GDP per capita in the long run. V) Two countries with the same initial aggregate capital stock, the country with lower population growth rate grows faster. VI) In the long run, all the countries with the same parameters (n, d, s, A), but different initial capital stock reach to the same GDP per capita. VII) In the long-run, per capita GDP stops growing for
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Page 2 of 6 all countries. This is probably the most disappointing prediction of the Solow model. In order to go beyond this prediction that basically says that there is a limit to per capita growth, economist have tweaked the Solow model in a number of ways that would be too complicated to present to an intro Macro class. You will probably study some of them in intermediate Macro, if you plan to take that course. If you remember what we studied when we saw the
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Implications of Solow - Implications/predictions of the...

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