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### Solow growth model assumptions of solow growth model and steady state in solow model

The Solow Growth model is an exogenous model of economic Growth  that analyzes changes in the level of output in an economy over time as a result of changes in the population growth rate, the savings rate, and the rate of technological progress.

Assumptions of the Solow growth model:

1. One composite good produced which is either consumed or accumulated in capital form
2. Homogeneous labour
3. Two factors of production— Capital (K) and Labour
4. Constant Return to Scale (CRS) production function
5. Economy exhibits diminishing returns in the labor and capital inputs.
6. Marginal Propensity to Save (s)—assumed constant
7. Exogenously given labour force growth rate (n)
8. Closed economy and Laissez Faire

Structure of the solow growth model:

Suppose that there is no depreciation, Consider aggregate production function.

Y=F(K,L)
Where Y is the aggregate output K is the aggregate capital and L is the labour force
We have already assumed that production function exhibit constant returns to scale that means
if L,K increases by λ then Y will increase by λ.
Y=F(K,L) for all λ>1
Let λ=1/L
then Y/L = F(K/L, L/L)
y=f(k,1)
or y=f(k)
where y is output per labour
k is capital per labour

if we draw the picture of the above equation

In the above diagram output per worker(y) depicts on vertical axis while capital per worker(k) depicts upon horizontal axis.
The slope of the curve at any point represents the marginal product of capital (MPK), the slope in the
graph decreases because of diminishing MPK. This implies that as an additional unit of capital added to a
fixed labour supply , the gain in output is positive but less than the extra output generated from the
addition of the previous unit of capital.
Accumulation of Capital: The change in the capital stock per worker (known as capital deepening) is the
investment per worker, given by
i = 𝑆/L (here i is a investment and we know that saving equals to investment )
i = 𝑠𝑌/𝐿 since Y/L =y
i= sy since y = f(k)
i = s f (k)
where s is the MPS and i = 𝐼/ 𝐿 , and as I = S, we have 𝑖 = 𝑆/𝐿
Graphically given as

Equilibrium and steady state

That is at equilibrium, the investment function and the 45 line (nk function) cut each other at k*.
If , k < k* then,  sf (k) > nk, so k increases towards k*
If , k > k* then,  sf (k) < nk, so k decreases towards k* Once the economy gets to k*, the capital stock does not change.
Also, when k = k* , we get, y = y*, that is, at equilibrium both capital and output per capita level are settled to the constant levels k*  and y* , respectively.
This in turn results in the constant capital-output ratio at equilibrium. With k (per capita capital) and y (the per capita output) constant at equilibrium, we get the  growth rate of capital (K) and output (Y) equal to the exogenous growth rate of labour (n) at equilibrium.

## Conclusion from the Solow growth model Model

1. There exists a steady state (balanced growth) solution for the model, which is achieved whatever be the initial values of all the variables. The economy eventually reverts to the steady state equilibrium value of y and k (as we saw the adjustment when k ≠ k* ).
2. The balanced rate of growth of output and capital is the constant exogenous growth of the labour force, which is n.

for more
https://www.ecoonline.tk/2019/06/harrod-domar-model-vs-solow-model.html
Harrod domar Model
https://www.ecoonline.tk/2019/06/harrod-domar-model-assumptions-of.html

### Harrod Domar model, assumptions of Harrod Domar model, it's working and limitations of Harrod Domar model

Harrod domar model is an economic growth model, the model suggest that economic growth rates depend upon two things savings and capital output ratio. Higher savings enables higher investment thus higher growth rate , while lower-output ratio means Investment is more efficient thus the growth rate will be higher.
Mathematically growth rate (g) α level of savings  growth rate (g) α 1/capital output ratio(k)

Assumtions of the Harrod Model- 1. Savings leads to investment S= I
2. Investment leads to change in capital stocks I= ΔK
3. Constant capital output ratio (r) = K/Y.
4. There is no government intervention it the functioning of the economy.
5. A full- employment level of income already exist.
6. There are no lags in adjustment of variables.
7. Average propensity to save (aps) equals to marginal propensity      to save (mps) that means absolute change equals to relative change.
Harrod model is depends upon three growth rates a) Actual growth rates (G). b) Wwarranted growth rates (Gw).
c) Natural gr…

### Balance of payments (BOP)

Balance of Payments (BOPs) is the record of all trade and financial transactions of one country to the rest of world. The direction of money flow determines whether a particular item is Credit or Debit. For example export of a good is credit (since your country will receive money in exchange of goods) and foreign investment is a credit, similarly import of goods and investment abroad is a debit.

BOP has two Accounts - Current Account and Capital Account, All current or revenue expenditure transaction (such as export import transfer payment, non-factor payments) are recorded in current Account. Transactions that influence country’s Capital asset are recorded in Capital Account.

BOP equilibrium is achieved when the sum of current Account balance and Capital Account balance equal to zero, If addition of these two Accounts results in a surplus (deficit) then it is indicated as BOP surplus (deficit).