3 Economic Insights from Economic Model
Construction (4pts)
Now, you are familiar with the economic models, and understand that the
economic insight, i.e, the idea that we take from the facts, is crucial to guide
the construction of economic model.
Let's answer the following questions, based on your understanding of eco-
nomic models in the Macroeconomic lectures.
1. Within the market clearing condition, savings are equal to investment,
i.e, ($S_t = I_t$), what is the role of banking system?
2. These three models (Solow, OLG and Ramey models) are classified as
exogenous growth model, since the technology progress is determined
outside the model. Employ the endogenous growth lecture to explain
the source of technology progress.
3. Compare the dynamics of Solow, OLG and Ramsey model. Then, ex-
plain the reasons why the dynamics in the OLG model can be still solved
without the dynamic equation for consumption. (hints: determine how
many equations for dynamics in each model).
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4. Is there inflation in these Solow, OLG and Ramsey models (inflation
exists when the overall price level raises over time in an economy)?
Explain the reasons.
