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Economics 311

Summary of the Solow Growth Model

Solow Model without Solow Model with Solow Model with


population or efficiency population growth only population and
growth efficiency growth
1
Production
Function
Y = 1
K L Y = K L1 Y=K (LE )
1
Y K L1 K Y K L1 K K (LE )
Production per
Y
worker = = = = = =
(or production L L L L L L LE LE
per effective
y = k y = k Y K
worker) =
LE LE
y = k
Steady-State
k = s k k = 0 k = s k ( + n )k = 0 k = 0
Condition
k K s k K s s k ( + n + g )k = 0
= = = =
k Y k Y + n k
= =
K s
1 1 Y +n+g
k
s 1 s 1
k* = k* = 1
+ n s 1
k * =
+n+ g

Golden Rule MPK = MPK = + n MPK = + n + g


Condition

Steady-State Growth Rates


Total output (Y) 0 n n+g
Output per 0 0 g
worker (Y/L)
Output per -- -- 0
effective worker
(Y/LE)
Total capital (K) 0 n n+g

Capital per 0 0 g
worker (K/L)
Capital per -- -- 0
effective worker
(K/LE)
Real wages 0 0 g
(W/P)