Answer to Question #65095 in Macroeconomics for Puspa Tripathy

Question #65095
What is meant by steady state in the Solow model? Derive conditions for steady state in an economy. What is the significance of decreasing returns in the Solow model?
1
Expert's answer
2017-02-11T08:38:12-0500
The Solow model is a neoclassical model of an economical growth of Robert Solow. It bases on the Cobb-Douglas production function. In this case a factor of the economical growth is a technical progress. Returns decrease on a sum of investments and consumption. So, we have such an equivalence as:
Y (returns) = I + C
Full employment and new technologies are the main conditions of steady state in an economy.

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