Answer to Question #72602 in Macroeconomics for Agrita singh

Question

Bring out the salient features of Ramsey model for decentralized households (your answer should include the assumptions, important equations, phase diagram and its interpretation). In what respect is it different from the Solow model?

Answer 1

The Remsey model is a continuation of the Solow model in terms of optimization in the growth process. This is one of the main models of the working model in macroeconomics. The main point about the Ramsey model is that it's a Presbyterian theory, not a prognostic one. In principle, such a model is designed for a closed economy. The only agents to which they belong are households and firms. The representative farm provides works to the firm, and also is a shareholder of the firm.
There are two key equations of Ramsey's model.
1. The first is the law of motion for the accumulation of capital.
2. The second equation concerns the preservation of household behavior and less intuitive.