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The following arguments are presented more completely in Chapter 1 of Barro and Sala-i-Martin [3] and in texts such as Abel et al.. [4]Let k be the capital/labour ratio (i.e., capital per capita), y be the resulting per capita output (= ()), and s be the savings rate.
This is the Solow–Swan model's version of the golden rule saving rate. Since α < 1 {\displaystyle {\alpha }<1} , at any time t {\displaystyle t} the marginal product of capital K ( t ) {\displaystyle K(t)} in the Solow–Swan model is inversely related to the capital/labor ratio.
The Golden Rule is a guideline for the operation of fiscal policy. The Golden Rule states that over the economic cycle, the Government will borrow only to invest and not to fund current spending. In layman's terms this means that on average over the ups and downs of an economic cycle the government should only borrow to pay for investment that ...
An economy in the Solow growth model is dynamically inefficient if the savings rate exceeds the Golden Rule savings rate. If the savings rate is greater than the Golden Rule savings rate, a decrease in savings rate will increase consumption per effective unit of labor.
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Robert Merton Solow, GCIH (/ ˈ s oʊ l oʊ /; August 23, 1924 – December 21, 2023) was an American economist and Nobel laureate whose work on the theory of economic growth culminated in the exogenous growth model named after him.
Trevor Winchester Swan (14 January 1918 – 15 January 1989) was an Australian economist.He is best known for his work on the Solow–Swan growth model, published simultaneously by American economist Robert Solow, for his work on integrating internal and external balance as represented by the Swan Diagram, and for pioneering work in macroeconomic modeling, which predated that of Lawrence Klein ...
Uzawa's theorem demonstrates a limitation of the Solow-Swan and Ramsey models. Imposing the assumption of balanced growth within such models requires that technological change be labor-augmenting. Conversely, a production function that cannot represent the effect of technology as a scalar augmentation of labor cannot produce a balanced growth path.