Office Hours: The Solow Model
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- Опубликовано: 19 апр 2016
- In last week’s Principles of Macroeconomics video, you learned about the steady state level of capital and the Solow model of economic growth. Here are two of the practice questions from that video:
Country A has K=10,000 and produces GDP according to the following equation: GDP=5√K.
1) If the country devotes 25% of its GDP to making investment goods, how much is the country investing?
2) If 1% of all machines become worthless every year (they depreciate, in other words) in Country A, GDP is...?
These are tricky problems! If you're stumped, don’t worry. Mary Clare Peate from the Marginal Revolution University team is here to help.
Are you struggling with a different practice problem or concept from an MRU video? Let us know! Head on over to our feedback forums to suggest a topic for a future "Office Hours" video: bit.ly/1psatWs
Additional practice questions: bit.ly/1SvNoP8
The Solow Model and the Steady State: bit.ly/1YGYiA3
Help us caption & translate this video!
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WOW! The fact that this video is less then 7 minutes, and you've proved all necessary information to enhance our understanding. Thank you.
The Best RUclips channel in order to understand Economics! Thank you
You taught me more in one video than my professor did in a few lectures. Thank you so much!
Thank you so much for the video! Teacher was clear and concise!
Thank you so much! I graduated 10 years ago and only today I understood the solow model!
It's a great online learning video for me from a developing country in Southeast Asia. Thanks!
Excellent. Thanks a ton to whole team of marginal revolution University
thank you so much.Finally, I understood this topic.
Thank you so much. This really helped me
It is very easy to understand. Thank You!
4:21 damn, she got me! 😂
good catch haha
same hahaha
Great explanation. Thank you so much! 😃
thank you for these videos!!
THey are a huge help in understanding what they might ask on exams. Thank you!
That was so well explained!!
You are such a professional. Thanks...
beautifully explained!
I got it correct!!! Who hoo!!! I paused it first then answered, my approach is a more on solving but from there I knew that it was increasing. But this graphical approach is much better. I am so happy!!!
If you know anything about relative rates of change in calculus 1, then you can find the rate at which investment occurs compared to that of which deprecation occurs and if there is a surplus, then GDP is growing, but if there is not, then there will be a steady-state or decreasing GDP (depending on how it all works out in the end).
Really well explained.
Thank you mam.This video really really helps me.
You guys are amazing. please upload Ramsey cass kopman model, Diamond models, DSG models,
great learning, thanks from Chile
If one's goal were to maximize consumption would one invest to aim for a steady state point such that the derivative of the GDP relative to K at said point is equal to the rate of depreciation?
Good and thorough presentation,. One possible source of confusion with the initial Solow presentation may be the curve showing GDP = f(K^0.5). The positive slope for GDP is seen to continue to the right of the equilibrium point. This is an understandable and pretty minor issue since the functional relationship still exists regardless of the investment level or degree of depreciation, but it still might make the point better by for example "rubbing out" the curve to the right of the equilibrium point. This would emphasize that this is where GDP growth stops.
thats what confused me actually, thanks for pointing this out.
thanks. quite concise
Since the question says 1% depreciation, Depreciation function should be D=0.01(K), not 0.1.
Exactly!!!
It is, look closely .01 is same as 0.01
excellent, thanks
This is great! Thank you so much! One small point that would've helped me: I wish you would've drawn the red line continuing to increase past the 10,000 mark until it reached the steady state point, rather than the straight horizontal line you drew. Does that make sense? I'm just now trying to learn this stuff and it took me a while to realize that I was blocked by this. Or maybe I'm wrong and that isn't what happens to the red line (GDP), but I'm pretty sure it does.
yeah, you make a suitable remark. it will be more understandable for someone if she increases the red line slightly after the K = 10.000 before reaching the steady state. But nonetheless, she still got it right. , let me explain :
in fact, the straight red line after a certain level of k ( here K=10000) is just due to the low of diminishing returns one capital, and this is independent of the depreciation or the level of investment. in other words, even if we don't mind the steady state '(S.S) level, increasing in K implies that the production function is increasing in less proportion ( marginal product becomes lower and lower ), so at a certain point, due to the low of diminishing returns, even if the stock of capital increases the GDP will not increase or very very small like almost constant, that's why the flat red line ... and this is nothing to do with S.S. level. This is due to the nature of the production function and you can get this point after or before the S.S. level.
But now, for the steady state, we get GPD not increasing due to the fact that investment for new capital = Depreciation for lost capital, so our investment just allows us to replace the lost stock of capital; and by the way, K remains constant and likewise GDP too. This is called Steaty state.
You see that the two situations of the GPD constant are different in their causes . !!!
Hope my explanation helped you to get it right!
great video
Thank you very much..
Can you explain mathmatical regression model with economic
Make video on Paul Romer Endogeneous Growth model
Good numerical example.
Mam im from nepal....please tell me about slow model economy theory....
Dear Friends, Could you explain the meaning of Depreciation rate of this model?. Thank you.
how can you calculate the steady state ? thank you for this video, it really helped me
I know this was asked 2 years ago but the steady state is found when sf(k) = dk. So you can simply substitute in your savings rate, depreciation rate, and GDP equation and solve for k.
It should be 15625 k
thank u for the videos !
You are welcome!
-Roman
You're welcome, Abby! Glad that these helped you out. :) -Meg
thank you
GET ON WITH IT!!!!
yayyyy i got it right
thanks a lot! it helps me significantly better understand the gloomy china economic growth today
how could they miss this ?
it was too easy to solve
thank to Mr.Tabarrok explanations
omaygad... i may enter youtube university
Why we study solow model, it's not applicable one it is swimming in the illusion or in the endless Skye voices
No matter how much u earn. Your wealth depends upon your expense behaviours 🤑
Lol..what's the marginal benefit of knowing how to solve this question?🙂. Almost zero, maybe...unless you wanna be a professor or fixing the economy...rather than working for IBM, Apple, wall street companies, even McDonalds and your own startup...lol.
Btw, how does k/y grow? Increase, right? Because y grows at a diminishing rate...
You want all of RUclips to watch you videos, however the average IQ rating of everyone on RUclips is probably around 80. This video is too technical and should be placed as an external link to an unlisted video.
I like your videos and with this information I am giving you I hope it will lead to many more finding your channel.
This is the simplified version, the videos they have on the website are much more extensive. I think the target market is first year uni, this video is fine.
Honestly, I think this is directed to college students... why be worried about being too technical? of course, not everyone will get it, but why should they be concerned about ''low IQ audience''? What does this even have to do with IQ? Considering the type of people that really search for this kind of content, I don't really understand your point.
"A capital stock of 10,000." Right out of the gate this video creates a series of errors of abstraction and aggregation. If you attach units to these values, the abstract math falls apart. 10,000 whats? 10,000 tractors do not equal 10,000 iPhones. Even if you attach dollar prices to these variables, you have meaningless formulae. $10,000 spent on tractors does not equal $10,000 spent on iPhones. You can have fun with math, but you should not abuse it.