Solow growth model
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1-In the following Solow growth model, consider the capital-labor ratio K* satisfying
S (K*)= (n +) K*
What is K* called? What is k at K? Explain equation1 in words then explain carefully how this is related to the Solow model diagram.
2-Present and Explain the diagrammatic model that shows the possible need for a Big Push, using your own words to express the main points.
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Solution Summary
The Solow growth model is carefully applied in this solution.
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Question 1.
K represents the capital/labor ratio, or the amount of capital available per unit of labor input. Because labor capital involves human input, humans are not able to work forever. Eventually they must be replaced, due to age, death, etc. In addition, external factors might affect this human input. The cost of this capitol/labor requires an investment to maintain ...
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