Answer to Question #287652 in Microeconomics for mukti

Question

Explain the concept of the long run economic growth and the key idea of Solow Growth model. Also explain how the Solow growth model is appropriate to long-run growth analysis.

Answer 1

Solow model focuses on the long-run economic growth which believes that for economic growth to occur savings and investments play a greater role. Solow Model argues that an increase in saving and investment increases the capital stock which puts a country in full employment on national income and national product. Solow growth model is appropriate in the long run since savings and investment is not a short-term thing but a venture that seeks sometimes to make its impacts effective in a long time. It thus focuses on the long-run when a country has saved enough and is seeking investment ventures to employ their saved funds.