The Solow Growth Model

The Solow growth model illustrates the long-run behavior of a macroeconomic system. Material on this Web site helps students understand this important model. The site’s primer makes the concepts accessible, and the Excel-based workbook lets students manipulate the model. The workbook follows Mankiw’s Macroeconomics, but it can be used as a stand-alone module. Students can easily find the steady state in Excel, and they can change parameters and variables to see how the system adjusts. Students also can consider the effects of various policy changes, especially those that affect 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. Also, students can use the workbook to see how changes in technology and population affect outcomes. The maximization of per-capita consumption is adopted as the Golden Rule Steady State. Students can see where this state occurs and can then easily change the savings rate to see how sensitive the steady state consumption rate is to these changes.