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Solow-Swan growth model - Essay Example

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The present essay "Solow-Swan growth model" deals with the description of the economic model. According to the text, the neoclassical growth model or the Solow-Swan growth model is a type of economic model that analyzes long-run economic growth…
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Solow-Swan growth model
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Download file to see previous pages The model begins with neoclassical production function presented by equation Y/L = F (K/L. making y the subject of the equation y = f(k), and this is represented by the red curve. Therefore, output per worker translates to capital per worker.
From the graph, n = population growth rate, y = output/income per, k = capital per worker, worker, s = saving rate, L = labor force, and δ = depreciation.
The steady state is at point A where the two graphs interact. At this point, the first equilibrium, the output per worker is ever constant. When the investment cannot combat population output per worker the curve falls from y2 to y0. When saving per worker is greater than depreciation plus the population growth, the cumulative capital increases leading to shifting of the steady state from equilibrium A to B.
The concept of Keynesian economics is based on the divine entity that can lead to over economic difficulties. The Keynesian economics model emphases on the fact that intervention put by the government to necessary economic stability and growth during economic hard times. In this economic model, the government has a vital role to smoothen the business cycle bumps. The model stresses on the significant measures the government should take on spending, hiking, tax breaking among other measures for the economy to function best during the economic crisis. The main importance of Keynesian economics economy is that it helps governments to survive severe economic depression (Frank and Bernanke 54)....
In this economic model, the government has a vital role to smoothen the business cycle bumps. The model stresses on the significant measures the government should take on spending, hiking, tax breaking among other measures for the economy to function best during the economic crisis. The main importance of Keynesian economics economy is that it helps governments to survive severe economic depression (Frank and Bernanke 54). According to Keynesian economics theory, the macroeconomic economy is significant than a market aggregate. Moreover, resource markets and individual commodities can easily lead to automatic equilibrium that can last for a long time. However, it does not guarantee fell employment. Nonetheless, the Keynesian economics benefit government policies since it gives a helping hand to the economy. IS/LM chart illustrates an upward shift in the IS a curve that indicates an increase private investment or government spending thereby leading to interest rates (i) due to higher output (Y) Great Recession The Great Recession is the estimated as the longest regression of between 2007 and 2012. Therefore, it is sometimes called the 2007 global regression or the lesser depression. It is related to the dominant global decline that started in December 2007 and registered a sharp down downward turn in 2008. The Great Recession affected the economy of the entire globe and some of the countries were hardly hit. The main characteristic of this recession was the systematic imbalance that led to global financial crisis between 2007 and 2012. Furthermore, it led to the European sovereign debt crisis. Regardless, of the European debt crisis, china and United States showed a continued economic growth; thus, these two nations becoming global economic ...Download file to see next pagesRead More
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