Answer to Question #291000 in Macroeconomics for Godana

Question

1. Strength and weakness of Solow growth model and it contribution to empirical economics growth model.2. main conclusion of the model

Answer 1

1. Strength:

• gave the necessary mathematical basis for the analysis of the rate of change of capital and the economic effect of economic progress

• the Solow model assumes a continuously achieved equilibrium with "full employment" of all resources.

weakness:

• the model does not show how the decisions of households affect the saving rate and, together with the decisions of firms, the rate of economic growth

• the model also contradicts the Keynesian approach, in which saving determines the amount of investment
• Empirical verification of a number of provisions of the model showed that they are not confirmed in practice.

2.A model that combines the neoclassical form of the production function with constant returns to scale, diminishing returns to factors, positive elasticity of factor substitution, and a constant saving rate