ABSTRACT
The Solow model of economic growth, also known as the Solow-Swan model, makes several assumptions that may seem to be heroic in order to describe the long-run evolution of the economy. This chapter introduces numerical methods for solving differential equations and implements the Euler method to solve initial value problems using MATLAB/Octave code. Economic model is a model of capital accumulation in a pure production economy. This model captures the pure impact that savings has on the long-run standard of living. Solow model is built around two equations: a production function and a capital accumulation equation. Most of the key results for Solow's model can be obtained using any of the standard production functions. The chapter presents Solow diagram, which allows to understand how per capita output evolves over time, taking into account an economy that starts out with a given stock of capital per worker, and a given population growth rate, depreciation rate and investment.
