Answer to Question #207474 in Macroeconomics for Kebalepile Mahole

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

The Solow growth model is used to model an economy's long-term economic growth by combining the two primary features of saves and investments. It is an exogenous model of economic growth that examines variations in an economy's output level over time as a result of changes in population growth, savings rate, and technical advance rate. According to the Solow model, growth is attributable to capital accumulation and there is a constant saving rate and constant population increase with stable steady-state development routes. Saving and investment are important components of economic growth. A rise in saving and investment raises the capital stock, which in turn raises full-employment national income and product. When national income and product grow at a faster rate, the rate of growth of national income and product increases as well.

Higher savings and investment, according to the Solow model, have no influence on the rate of growth in the long run. As a result, because the pandemic will affect increased savings and investments, the rate of economic growth will be influenced in the short term, but the rate of economic growth will be stable in the long run. Besides, as the population growth rate falls, the steady-state level of output rises. However, as the population growth rate rises, the steady-state level of output falls.