Question: Want detailed explanation! 2. The Solow model makes two important assumptions. First, it assumes that as population increases so does employment. As a result of

Want detailed explanation!

2. The Solow model makes two important assumptions. First, it assumes that as population increases so does employment. As a result of this assumption we can equate population, the labor force, and employment. Second, it assumes that the saving rate (or investment rate) is constant. Given that growth theory focuses on long periods of time, discuss the relevance of both assumptions. The following two gures may be useful to answer the question. Figure A112: Net domestic investment rates 1870-2010 1\" M5 1901 MS ms 1m M5 1m WMMNWUSW SOJMIU-S-BUWMWTSWW 1870 1890 1910 1930 1950 1970 1990 2010

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