What are the assumptions underlying the three macro models for establishing long run economic growth?

Answer 1

The fisrt Growth model is the Malthusian model .Here there were two factors of production, Land and labor. Land was fixed in supply and the population grows exponentially. There is diminishing marginal product of labor. As the population grows it will eventually the economy won't be abl;e to feed itself causing starvation and increased death rates. After a severe famine the population will be very low and contimue to gro until an optimal pulation is achieved where birth rates = death rates.

Malthus wrote this treatise about 2 weeks before the beginning of the industrial revolution and the development of a manufacturing sector.

The Second model is the Solow or Solow Swann model which say that an economy can grow no ster i (as measured by output [per worker) than the growth rate in labor productivity. The Long run output per worker is determined by the savings rate. The Only real role for policy makers is to influence the savings rate which will acct the living standards of future generations or policies which may increase labor productivity (technical change).

A third class of growth models is called EG for Endogenous growth. Output is a function of capital, labor and "human capital".. It is usually assumed the marginal product of Human capital does not diminish. The conclusion here is that you don't just accumulate capital for the growth in population and labor efficiency but also to accommodate more human capital. Here another policy tool is to educate the labor force.

I hope this helps.

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Lenny