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Q. Explain the solow swan model in detail. - what is the sy, (n+d)k and y=f(k)...

Q. Explain the solow swan model in detail.

- what is the sy, (n+d)k and y=f(k) stand for? (difference between sy and y=f(k))

- how does graph change when the productivity growth happen?

- when saving rate increase, how does graph change?

Solutions

Expert Solution

- sy is the investment per worker.

(n+d)k shows the upward sloping straight depreciation line.

y = f(k) shows the per worker production function

difference between sy and y is the change in the capital per worker which is zero at steady state

- Refer figure 2. Initial steady state is at point E where the investment per worker and the depreciation line intersects.

Increase in the productivity will shift both investment per worker curve and the production function upwards. There will be an upward movement along the depreciation line from E to E1. The economy reaches to a new steady state E1 with higher capital per worker, k2 and higher output per worker, y2

- Refer figure 3. Due to increase is savings, the investment per worker curve shifts up. As a result, the capital per worker rises from k1 to k2 and the output per worker increases from y1 to y2.

Rahul Sunny answered 1 year ago
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