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Macroeconomics I: Solow Growth Model

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Questions and Answers

What is the production function?

The production function relates inputs to output.

What property of production functions does neoclassical economics imply?

Diminishing returns to each input.

What assumption is made about the production function in the text?

It has the property of constant returns to scale.

What does Yt represent in the production function?

Macroeconomic value-added, i.e. the production of goods and services net of intermediate inputs. Signup and view all the answers

How is the marginal product of an input defined?

The increment to output obtained from hiring one more unit of an input, holding all other inputs and technology constant. Signup and view all the answers

What is the main goal of the Solow growth model?

To understand the long-run determinants of living standards, study transition dynamics of an economy, and quantify the sources of growth. Signup and view all the answers

What does the Solow growth model require us to be specific about?

The production structure of the economy, the process by which factor inputs evolve, and the process by which technology evolves. Signup and view all the answers

What does the Solow growth model provide a relatively simple framework for?

Gaining basic insight into the determinants of living standards and how an economy might grow over time. Signup and view all the answers

What are the 3 main goals of the notes on the Solow growth model?

<ol> <li>Understand the long-run determinants of living standards. 2. Study transition dynamics of an economy within the context of a neoclassical framework. 3. Quantify the sources of growth in a relatively simple growth accounting framework.</li> </ol> Signup and view all the answers