Dealing with Solow Model
INTRODUCTION
Mishkin (2012) defines macroeconomics as the study of economic activity and prices in the overall economy of a nation or a region. In macroeconomics economic theories are utilised to elucidate particular economic phenomena and the theory involves some economic models. Macroeconomics focuses on three data series which are the real GDP, unemployment rate and inflation rate.
Focusing on GDP the gross domestic product it has emerged as the single most renowned economic indicator for government policies and businessman. Wenzel (2009, p 61) defines GDP as the measure of the size of an economy as captured by the market value for all final goods and services sold within a given period of time. As it compounds a whole sphere of economic activity in a single number and can be decomposed in its contributing parts, it is an invaluable measure of aggregate production that proofs extremely valuable for extracting specific information about the activities in a particular sector. Further, the GDP is the broadest measure of income existing and has the noble features of being easily quantifiable, internationally standardised and above all readily available relatively consistency for all countries.
As the world population continues to grow geometrically great pressure is being placed on available resources and the environment is getting strained. Hence this has led some different policies to be applied in various countries to manage the population growths. Population growth increases demand, however, it also floods the labour force with excess employees thereby depressing wages and increasing poverty hence the GDP is affected unfavourably.
The following essay seeks to exhibit the Solow growth model graphically and empirically which according to Mishkin (2012) the Solow model articulates how saving rates and population growth determine accumulation which in turn affects economic growth. This model also postulates that GDP is produced according to an aggregate
Mishkin (2012) defines macroeconomics as the study of economic activity and prices in the overall economy of a nation or a region. In macroeconomics economic theories are utilised to elucidate particular economic phenomena and the theory involves some economic models. Macroeconomics focuses on three data series which are the real GDP, unemployment rate and inflation rate.
Focusing on GDP the gross domestic product it has emerged as the single most renowned economic indicator for government policies and businessman. Wenzel (2009, p 61) defines GDP as the measure of the size of an economy as captured by the market value for all final goods and services sold within a given period of time. As it compounds a whole sphere of economic activity in a single number and can be decomposed in its contributing parts, it is an invaluable measure of aggregate production that proofs extremely valuable for extracting specific information about the activities in a particular sector. Further, the GDP is the broadest measure of income existing and has the noble features of being easily quantifiable, internationally standardised and above all readily available relatively consistency for all countries.
As the world population continues to grow geometrically great pressure is being placed on available resources and the environment is getting strained. Hence this has led some different policies to be applied in various countries to manage the population growths. Population growth increases demand, however, it also floods the labour force with excess employees thereby depressing wages and increasing poverty hence the GDP is affected unfavourably.
The following essay seeks to exhibit the Solow growth model graphically and empirically which according to Mishkin (2012) the Solow model articulates how saving rates and population growth determine accumulation which in turn affects economic growth. This model also postulates that GDP is produced according to an aggregate