Solow's Original Model versus Textbook Model

International Journal of Economics and Research (IJER), Volume 7, Issue 2, pp. 8-15, 2016

8 Pages Posted: 13 Jun 2016 Last revised: 29 May 2017

See all articles by Merter Mert

Merter Mert

Department of Economics, AHBV University

Date Written: 2016

Abstract

The textbook explanation of the Solow model assumes implicitly that there are stationary, rather than steady-state, conditions. This study shows that the stationary-state conditions assumption is not compatible with the neoclassical postulate. The Solow model explains long term equilibrium at full employment. In the short-term economy is out-of-equilibrium. It is shown that if it is assumed stationary state conditions, there is no growth, saving propensity cannot change exogenously and transition from full employment to out-of-equilibrium conditions, and consequently from out-of-equilibrium to full employment conditions cannot be explained. Explaining the Solow model starting from stationary-state conditions prevents to understand the critical difference between classical and neoclassical economics.

Keywords: Solow Model, Neoclassical Economics, Steady State, Stationary State

Suggested Citation

Mert, Merter, Solow's Original Model versus Textbook Model (2016). International Journal of Economics and Research (IJER), Volume 7, Issue 2, pp. 8-15, 2016 . Available at SSRN: https://ssrn.com/abstract=2794340

Merter Mert (Contact Author)

Department of Economics, AHBV University ( email )

Ankara, 06500
Turkey

HOME PAGE: http://www.mertermert.org

Register to save articles to
your library

Register

Paper statistics

Downloads
20
Abstract Views
313
PlumX Metrics