In Solow Model, how does the savings rate affect the income level and steady-state growth rate?

In the short term, the higher savings rate leads to the increase of total output and per capita output growth rate. In the long run, with the accumulation of capital, the growth rate gradually decreases and finally falls back to the level of population growth. In short; The increase of savings rate can not affect the steady-state growth rate, but it can actually improve the steady-state level of income, that is, the growth of savings rate has only horizontal effect, but no growth effect.

Solow satisfies sy=(n+δ+g)k, that is, y/k=n/s+(δ+g)/s, and the substituted data is 0.2=0.2+(δ+g)/s, so δ+g=0, that is, this is a simple Solow model without considering depreciation and technological progress.

When the economy reaches a stable state, the economic growth rate is 0.0 1 labor growth rate. When the savings rate increases, it will only temporarily affect the economic growth rate. When it reaches a stable state again, the economic growth rate is still 0.0 1 labor growth rate.

Extended data:

Solow pointed out that the key to this fragile balance between Gw and Gn lies in the assumption that the labor force of Harold-Thomas model cannot replace capital, and the ratio of labor force to capital in production is fixed. If this assumption is abandoned, the "blade balance" between Gw and Gn will disappear. Based on this idea, Solow established a long-term growth model without a fixed production ratio assumption.

Solow's model shows that the ratio of capital to labor tends to self-adjust to the equilibrium ratio with the passage of time when the technical coefficient is variable. If the initial ratio of capital to labor is large, the increase of capital and output will be much slower than that of labor; or vice versa, Dallas to the auditorium Solow focuses on analyzing the balanced (i.e. steady-state) growth path from the ratio of capital to labor.

Baidu Encyclopedia-Solow Economic Growth Model