The Solow Model 2 – Comparative Statics
Using the Solow Model. What does the model predict when savings rates or other variables change? Related videos: The Solow Model - (Brief, no math) , The Solow
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It confused me why the exponent of labor must be 1-the exponet of capital, but then I realized that it is because they are inversely related. Since the exponents are measures of how strongly each factor effects economic activity, and the two factors together make up all of Economic activity then the two exponents together must equal 100% of Economic activity or 1. I realize now that your comment about the doubling of capital and labor leading to a doubling of Economic activity says the same thing, but it's not immediately easy to recognize why the equation works that way.