Answer to Question #208043 in Macroeconomics for Amanda

Question

Discuss from the solow model the 3 factors that affect long-run living standards

Answer 1

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An increase in saving and investment raises the capital stock and thus raises the full-employment national income and product. The national income and product rises, and the rate of growth of national income and product increases.

Population growth and technology .Solow sets up a mathematical model of long-run economic growth. He assumes full employment of capital and labor. Given assumptions about population growth, saving, technology, he works out what happens as time passes. it is consistent with the stylized facts of economic growth.

Full employment .if there is full employment all capital and labor are utilized in production. The production function exhibits constant returns to scale; doubling the capital and labor doubles the output.

Although according to the Solow growth model, in contrast, higher saving and investment has no effect on the rate of growth in the long run but affects the long run standards of living .