Practice Problems: Solow model.
1. Explain the main advantages and shortcomings of the Solow model.
2. Plot the Solow model diagram and explain the different axes and points.
3. Explain the principle of transition dynamics- goal and speed.
4. Explain what happens to the economy according to the Solow model when some
fundamentals change (Increase/Decrease):
Case 1. Saving/Investment rate
Case 2. Depreciation rate
Case 3. Capital
Case 4. Productivity.
Present the results using the following 3 ways:
1. Solow diagram.
2. Dynamics over time graph.
3. In words.
Example: Consider an economy in steady state. What happens to the economy according to the
Solow model immediately and over time when the saving rate falls?
1. Solow Diagram
2. Dynamics over Time graph
3. Explain in words what happens to the economy immediately and over time: