what is a solow model in economics?
Answers
Answer:
The Solow–Swan model is an economic model of long-run economic growth set within the framework of neoclassical economics. It attempts to explain long-run economic growth by looking at capital accumulation, labor or population growth, and increases in productivity, commonly referred to as technological progress.
In Economics,under Neoclassical Growth Model,Solow Model of growth is an exogenous model which shows the relationship between the output level and the population growth,the savings rate of the general population and technological advancement in an economy given the other resource endowments such as labor and capital.
Explanation:
Solow growth model basically portrays how the overall output level of an economy is impacted by the population growth,the rate of savings by people and the technological growth in any particular economy over the long term.All these components affect the productivity of the factors/inputs of production such as labor and capital which are used in the production process.
The model basically assumes that the population growth rate,the savings rate or proportion and the income growth rate of the general population in any economy are constant.The production of output basically depends on labor and physical capital inputs.The model predicts that in the long run,if the population growth rate,savings rate or proportion and the capital depreciation rate are constant and equal,then they will eventually converge and the steady state growth rate will be achieved by the economy.If the growth rate of these components are different then they will not converge at the steady state level.The technological growth in the economy can enhance the productive capacity of the factor inputs and induce long term expansion of the output level.