İKTİSADA GİRİŞ II

The augmented Solow model better explains the international differences in living standards, but it cannot account for the persistence of economic growth.

The production function is an expression that relates the total output produced to the quantities of inputs used.

The rule of 70 allows us to easily calculate how much it takes for a variable to double itself. If a variable grows at a pace of x percent per year, then it will take approximately (70/x) years for that variable to double in value.

70/x=14, Then x=5 percent

The economic theory and empirical results imply that the determinants of long-run economic growth are the rates of accumulation of human and physical capital together with sustained technological progress. Besides these factors, also, geography, integration and institutions play an important role.

Economic development is a broader concept than economic growth. Economic development reflects social and economic progress and requires economic growth. Economic growth is a vital and necessary condition for development, but it is not a sufficient condition as it cannot guarantee development.

HDI uses GDP per capita, but there is no indication of the distribution of income in the country. Such an implication cannot be made based only on HDI value.

An increase in saving rate (s) causes capital per worker to rise (not fall) as higher saving allows for more investment and a larger capital stock.

An increase in the rate of population growth causes long-run output, consumption, and capital per worker to fall because with higher population growth more output must be used to equip new workers with capital, leaving less output available for consumption or to increase capital per worker.

According to Snowdon and Vane (2005) the model has many shortcomings. Firstly, the model assumes a fixed capital-output ratio. The second weakness of the model is in the requirements financing gap in case of a low actual savings ratio relative to desired levels. The model assumes that inflows would go into investment one to one. Also, the model assumes zero substitutability
between capital and labor.