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According to the Solow growth model, why do all countries tend to converge to a steady...

According to the Solow growth model, why do all countries tend to converge to a steady state?

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Answer #1

Solow Model of Growth:- Prof. R.M. Solow makes his model of economic growth upon the Harrod-Domar model. It is the basic modern theory of economic growth.

The model:- In the model, Solow shows that there is same tendency of capital-labor to adjust itself through time in the direction of balance. He says that if the ratio of the capital to labor is more, capital and output would increase slowly than labor.
Solow take one compound commodity in the economy. And its yearly rate of production is represented by Y(t), which represent real income and part of it consumed and rest of it saved and invested.
The steady state is the basic to comprehensing the Solow Model. At the steady state an investment is equivalent to depreciation. That means that all of investment is being accustomed to mend and restore the existing capital stock.

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