Friday, June 20, 2014

Growth Modeling

From The Solow Growth Model (PDF, 18 slides) by Roberto Chang, Econ 504, Rutgers University, September 2012:

Once you assume the existence of the aggregate production function Y = F(K, AL), it is clear that the growth of output can be due to growth of A, K, or L.

As usual, investment is assumed to equal savings. The key behavioral equation of the Solow model is that savings equal a constant fraction of output...

Sometimes it is useful to make a few assumptions. But you want to be aware of the assumptions you're making. I suppose if you're an economist they taught you that stuff. People like me, we have to trip over it before we find it.

Watch your step.

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