Solow Model

The Solow Growth Model is a model that puts into consideration the act of accumulating capital in a production economy. The focus here is usually the outcome or the success that arises after that.

Reality

Employees have to work at all times to achieve the set target by the firm or the employer failure to which they will risk losing their job. To maintain this employee have to work consistently at all times which deprives them of leisure time or family time since they do not have a choice. There is also saving of fixed portion of their income once they receive it which limits them to the adequate utilization of their funds and in the long run, these benefit the firm.

According to this model, growth is always positive at all times, but with time it usually reduces to zero. This means that economy with a higher population size will hardly grow compared to that with a smaller population. Economies with large population size will always register minimum growth rate as a result of a high number of people which usually equate to minimal profit about population size compared to other economies.

It is also a closed economy because there is no aspect of taxation or exchange through imports and exports due to solely the lack of trade.This model assumes that there is no so much need of money by consumers because there are no financial markets or otherwise regular need for money.

In this model economy here usually register a higher rate of saving which attracts more per capita capital to boast the outcome, but in most cases, it does not promote the higher levels of per capita consumption among the consumers. This is because a habit of higher saving rate means that people are consuming very little even in the event of higher production.