Answer to Question #205031 in Macroeconomics for sesi

Question

The chart below illustrates the cumulative confirmed deaths by COVID-19 just before what looks to be a potential third wave of the pandemic in South Africa. There have been 56 363 confirmed deaths in South Africa alone from COVID-19 as of 30 May 2021. Use specifically the Solow growth model to discuss the implications of this pandemic on the prospects of long-run economic growth for South Africa.

Answer 1

Solution:

The Solow growth model is an exogenous model of economic growth that analyzes changes in the output level in an economy over time as a result of changes in the population growth rate, the savings rate, and the rate of technological progress.

According to the Solow model, there is a constant saving rate and a constant population growth with stable steady-state growth paths and growth is due to capital accumulation. A key component of economic growth is saving and investment. An increase in saving and investment increases the capital stock and hence raises the full-employment national income and product increases. When the national income and product rises, the rate of growth of national income and product also increases.

According to the Solow model, higher savings and investment have no effect on the rate of growth in the long run. Therefore, since the pandemic will affect higher savings and investments, the rate of economic growth in the short run will be affected but in the long run, the rate of economic growth will be steady. Also, in the long run, the steady-state level of output rises as the population growth rate decreases and vice-versa.