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Intermediate Macroeconomics Tutor NYU Columbia Solow Growth Model

Our intermediate macroeconomics tutor New York will prepare you for macroeconomics coursework at NYU, Columbia, Yale, Princeton, Brown, Duke.

Popular macroeconomics topics include measurement of macroeconomic variables such as GDP, GDP per capita, CPI, inflation, unemployment. The second part of intermediate macro starts with long-run growth including Solow growth model and Romer’s addition to the Solow model. Third part of the curriculum focuses on short-run macroeconomic fluctuations. This part is divided in Keynesian and Classical economics extending from IS-LM framework to AD-AS framework.

Key Solow Growth Model Equations

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The figure above shows five key equations of the Solow Model. First, the production function is a standard Cobb-Douglas function that exhibits constant returns to scale with exogenous technology. Second, the equation for capital accumulation shows the motion of capital. Simply put, it states that the capital available next year is equal to capital available today plus investment less depreciation of existing capital. This key equation shows how capital increases (is accumulated) over time.

The allocation of resources constraint says that investment is equal to national savings, which in turn depend on a constant saving rate times national income. Further, each unit of saving converts to a unit of capital.

The labor force is held constant, meaning there is no population growth.

Steady State

When not in steady state the economy exhibits a movement towards steady state. Initially, investment is higher than depreciation of capital and that leads to a net increase in capital stock. As a result, capital for next period increases but so does depreciation. Note that capital increases at a decreasing rate but depreciation increases at a constant rate. Eventually, the change in capital stock will get smaller and smaller and the net change will finally be zero. That is the steady state of capital.

Sample Exercise

Short Speeches

  1. Discuss the differences between R&D and business innovation. Which one do you think is key for development? Why?
  2. Richard Easterlin found that after certain level of income (close to 15.000 dollars), more income does not bring more happiness. Discuss the merits of this statement.
  3. An economy cannot grow faster forever even if it accumulates physical and human capital at the same time and even if there are NO diminishing returns to physical and human capital together. Do you agree? Explain your answer.


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