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Provide a brief overview of the Solow model. Discuss assumptions on returns to scale and outcomes....

  1. Provide a brief overview of the Solow model.

  • Discuss assumptions on returns to scale and outcomes. Particularly what are the main long run conclusions.

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Answer #1

Solow model of growth tells us that there can be a steady growth in the long run. If we introduce various factors that effect economic growth than are risk of low productivity can be reduced. Assumption:-

  1. One commodity is produced.

  2. Output is regarded as net output.

  3. Constant return to scale.

  4. Price and wages are flexible.

  5. There is perpetual full employment of labour.

  6. Labour and capital are substitutable for each other.

  7. The saving ratio is constant.

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