Solow Growth Model - Assessment Answer
Using the Solow growth model, consider the macroeconomic impact of a large earthquake in New Zealand that damages or destroys a significant amount of the nation’s physical capital stock. In doing so, carefully explain how the Solow growth model can be used to predict the short- and long-run macroeconomic impacts of the earthquake on economic growth and the standard of living. Write up your analysis as a report, clearly describing the relevant economic theory employed and the conclusions obtained. In doing so, set the model up and describe the initial steady state then use the model to explain what might happen to the New Zealand economy following the earthquake. Reflect on the macroeconomic policy options and the likely effects from them. Provide an overall critical assessment of the value of the Solow growth model as a means of understanding the macroeconomic implications resulting from an earthquake.
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