Advanced Macro & Growth · intro
What moves on the Solow-Swan Growth Model diagram
Higher s raises the investment curve: k* increases, but diminishing returnsdiminishing returnsEach extra unit of an input adds less output than the one before, holding other inputs fixed. end the growth once there.
The economy rests at k*, where investment just covers depreciationdepreciationThe wearing out of capital over time, or, for currencies, a fall in value against others..
Policy lifts the savings rate, the investment curve rises above break-even.
Capital deepens toward a HIGHER steady statesteady stateThe resting point of a growth model, where capital per worker stops changing because investment exactly covers depreciation and dilution.… then growth stops again. Saving buys a level, never a permanent growth rate.
Examiners ask this as: savings rate rises growth, investment push development.
Other scenarios on Solow-Swan Growth Model