Exploring the Solow balanced growth model
This material was originally created for
Starting Point: Teaching Economics
and is replicated here as part of the SERC Pedagogic Service.
and is replicated here as part of the SERC Pedagogic Service.
Initial Publication Date: October 14, 2010
Summary
In this laboratory or stand-alone assignment, students are led through the process of exploring a numerical example of the Solow (neoclassical) balanced growth model with productivity growth. Students construct and analyze time series plots of an example economy when critical parameter values are changed and observe the stability proof in action.
CollapseLearning Goals
Students gain an understanding of how the economy returns to the balance growth path after disturbances. They also learn to plot time series of economic data.
Context for Use
This assignment is designed for intermediate-level courses, but may be used in electives and introductory-level courses. Students do not need to understand spreadsheet construction or how the model is set up, though the instructor may modify the assignment to force students to construct the model.
Description and Teaching Materials
Below find an instruction sheet in Word format and Excel spreadsheets for the initial set-up and a sample completed assignment.
- Instruction sheet for exploring Solow model (Microsoft Word 32kB Jun24 10)
- Solow model (set-up) (Excel 115kB Jun24 10)
- Solow model (completed) (Excel 695kB Jun24 10)
Teaching Notes and Tips
The assignment sheet brings students step-by-step through the process. The Excel file uses a numerical method to iteratively solve the system of simultaneous equations, or in Excel parlance "Circular references".
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Assessment
Students may be asked to print out or electronically submit the final charts or spreadsheets.