Question

Question 4

In the General Solow model, list 2 policies (in terms of parameters of the model that could be changed by public policy) that would lead to higher c*.

Answer 1

Solow Swan Model is a neoclassical economic theory focuses on economic growth in the long run. This model was developed by Robert Solow and Trevor Swan. Due to its attractive mathematical characteristics Solow Swan model is accepted as the most convenient starting point. According to this model poor countries should grow faster and catchup other countries which are richer than them.

Another point at which this model emphasises that in the long run, economies converge into their steady state equilibrium and permanent growth can be achieved only through technological progress.  

According to this model as far as a closed economy is concerned capital is subject to diminishing returns.  

If the labour remains constant, the impact of output of the last unit is always less than the previous one. Hence it is clear that if no technological growth or labour force growth, a negative growth in the economy can be noticed.  

The following factors very much influence public policy. They are:

i. public ipinion

ii. economic condition

iii. technological change

iv. interest group

v. Non governmental organizations (NGOs)

The Nature Conservancy is one of the world's largest NGO, which focuses on environmentl impact of each business activity. Areas of biodiversity, fresh water, forestry and land management are under its special cocern.  

The American Academy of Pediatrics called for an overhaul of the thirty five year old company of toxic chemicals, runs under federal goverment, becuase it failed to safeguard the issues related to children and pregnant women.  

The following are the subjects which comes under the parameters of pubilc policy :

i. Criminal justice

ii. Culture and society

iii. Economic affairs

iv. education

v. envioronment

The following factors should be considered before the implementation of public policy.

i. knowledge and innovation

ii. social, political and economic situation

iii. Legal framework

iv. specific events that demand political response

v. institutional and external influence

Even if the ideas are coming from outside, policy is ultimately made by governments, or through the interaction of the governement and the public. Policy change refers to incremental shifts in exisiting structures. Policy change occurs through interactions between external changes. It is a major change in attitude or principle or point of view.