Economics: The Solow Growth Model

The significant difference in economic prosperity between developed and developing nations, particularly evident after the 18th century.

A situation where two regions with similar starting points experience vastly different economic outcomes due to a significant difference in a factor like policy or institutions.

A long-term process of economic development marked by continuous and sustained growth in per capita income and living standards.

The data source used to track historical economic development across countries, compiled by Angus Maddison.

The phenomenon observed where the income gap between the richest and poorest countries has widened significantly over time, particularly after 1870.

A measure of economic output per person, often used to compare living standards across countries.

The estimated minimum average income a country can sustain over a period of time, regardless of its development stage.

Inputs used in production that are not fully consumed during the production process.

The gradual reduction in the value of capital goods over time due to use, wear, and tear.

GDP adjusted to account for the depreciation of capital goods.

The total monetary value of all final goods and services produced within a country's borders during a specific period.

Goods or services that are consumed directly by final users.

The value added at each stage of production, calculated by subtracting the cost of intermediate goods from the revenue generated.

Goods or services that are used as inputs in the production of other goods or services.

Only new production of goods and services is counted in GDP.

The value added (or profit) generated by each stage of production, from raw materials to final goods.

The sum of all final goods and services produced within a country's borders during a specific period, typically a year.

An approach to measuring GDP by adding up all spending on final goods and services within an economy. This includes consumption, investment, government spending, and net exports.

A method for calculating GDP by adding up all the income generated by production in an economy. This includes wages, profits, and rental income.

A measure of GDP that reflects the value of goods and services produced at current prices.

A measure of GDP that reflects the value of goods and services produced using a constant set of prices from a base year.This allows for a more accurate comparison of GDP over time.

A measure of price changes in an economy, calculated as the ratio of nominal GDP divided by real GDP.

A formula used to adjust GDP for inflation, by finding a value that makes real GDP equal to nominal GDP at a specific base year.

An economic measure that reflects the total market value of all final goods and services produced within a country, regardless of the nationality of the producers.

The difference between a country's exports and imports. It represents the net contribution of trade to a country's GDP.

The Solow model predicts that countries with higher investment rates will have higher capital-output ratios, meaning more capital is used relative to output.

The Solow model predicts that in the long run, the economy reaches a steady state where the growth rate of output is zero. This is because investment, which drives growth, eventually equals depreciation, which offsets growth.

Diminishing returns to capital is a crucial aspect of the Solow model, as it leads to the economy reaching a steady state. As capital increases, the additional output it produces decreases.

The Solow model assumes that there is no technological progress. This means that the economy cannot sustain long-term growth through innovation or improved efficiency.

The Solow model explains how capital accumulation drives economic growth. The model shows that investment in capital leads to increases in output, but eventually the diminishing returns to capital lead to a steady state with zero growth.

A mathematical representation of an economic phenomenon with specific assumptions used to describe and analyze economic behavior.

A parameter in a production function, representing the overall efficiency of technology in converting inputs to outputs.

A function describing the relationship between inputs (capital and labor) and output (usually a good or service).

The inputs used in production that are not fully consumed in the production process. Represents the stock of tools, machines, and infrastructure.

The number of workers involved in the production process. Represents the labor force.

The total quantity of goods or services produced in a given period using capital and labor inputs.

A production function with a specific form where output is a function of capital and labor raised to constant exponents, reflecting diminishing returns to each input.

The change in a variable over a certain period of time, usually expressed as a percentage.

The process of long-term economic development characterized by sustained growth in per capita income and living standards.