week 3 Flashcards
1
Q
What is the Solow growth model about?
A
Capital Accumulation
2
Q
What can happen with production?
Represent this as an equation:
A
- Consumed
- Invested
Ct + It = Yt
3
Q
What is the Capital Accumulation equation?
A
Kt+1 = Kt + It - dKt
K =capital
d = depreciation in capital
I = investment
4
Q
How do people make the choice of investing or saving?
Provide equations for I and C
A
It = sYt
Ct = (1-s)Yt
s = investment rate
Saving is Investment
5
Q
What is the key identity at the steady state?
A
The depreciation of capital is equal to the investment:
It = sYt = dKt
6
Q
What affect y and k at the steady state?
How exactly do they impact?
A
The investment, I (or S), and the depreciation rate d
1. Increasing I increases k
2. increasing d decreases k
7
Q
What are the problems with the Solow growth model?
A
- It does not explain why we have long run growth
