Office Hours: The Solow Model

In last week’s Principles of Macroeconomics video, you learned about the steady state level of capital and the Solow model of economic growth. Here are two of the practice questions from that video:

Country A has K=10,000 and produces GDP according to the following equation: GDP=5√K. 1) If the country devotes 25% of its GDP to making investment goods, how much is the country investing? 2) If 1% of all machines become worthless every year (they depreciate, in other words) in Country A, GDP is...?

These are tricky problems! If you're stumped, don’t worry. Mary Clare Peate from the Marginal Revolution University team is here to help.