Publication: Journal of Economic Education
Volume: 38, No. 4
Issue: Fall 2007
Pages: 483
Author(s): J. Wilson Mixon, Jr. and William D. Sockwell
Address (Principal Author):
J. Wilson Mixon, Jr.
Dana Professor of Economics
Department of Economics
Berry College
Mount Berry, GA 30149-5024
Office Phone: 706-290-2679
Fax Number: 706-238-7854
Internet Address (Principal Author): wmixon@berry.edu
Title: The Solow Growth Model
URL: http://csob.berry.edu/faculty/economics/solow/solowmodel.html
Descriptive Note: The
Solow growth model is widely used to illustrate the long-run behavior of a
macroeconomic system. Material on this website helps students understand this
important model. The Excel-based primer makes the concepts more accessible and
lets students manipulate the model. The workbook follows Mankiw’s
Macroeconomics (5th ed.) with figures and tables from each step of that
textbook’s development, but it can be used as a stand alone module.
The workbook’s model uses a Cobb-Douglas production function. Following Mankiw, it omits government purchases and assumes a closed economy, and assumes that consumption is proportional to output. Students can easily find the steady state in Excel and they can manipulate the level of capital, savings and depreciation to see how the system adjusts.
Once students understand how the system works, they can consider the effects of
various policy changes. A key variable that policies may affect is the savings
rate. If savings can be manipulated by policies, then analysts are faced with
the normative issue of determining the “best” value of saving and, consequently,
the “best” steady-state outcomes for capital, investment and consumption.
Although not the only possible
criterion, the maximization of per-capita consumption is adopted as the Golden
Rule Steady State. Students can readily see from the graphs where the Golden
Rule Steady State occurs and can then easily change the savings rate to see how
sensitive the steady state consumption rate is to these changes. They can also
see how the new savings rate might cause intergenerational conflicts as it
affects other variables through time.
Finally, students can use the workbook to see how changes in technology and population affect outcomes. The ability to manipulate a variable and immediately see how the change affects other variables helps students understand the model’s implications.
Forthcoming Accepted Web Sites
Fall 2007 Table of
Contents
Online Section
Journal of Economic Education WWW Page