Physical capital - The Solow model

5 important questions on Physical capital - The Solow model

In the Solow model, where does the action come from?

The accumulation of capital (governed by investment and depreciation)

The change in the capital stock

DeltaK = I - D
I: quantity of investment
D: quantity of depreciation

The equation for the evolution of capital per worker

Deltak = gamma*f(k) - deltak
gamma = fraction of output that is invested
delta = fraction of the capital stock that depreciates each period
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Describe the steady-state capital stock

The level of capital at which the lines representing investment and depreciation intersect.

Explain the term convergence toward the steady state

This describes the process by which a country's per-worker output will grow or shrink from some initial position toward the steady-state level determined by the investment rate.

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