Note: This is post #82 in a weekly video series on basic economics.
In the previous two videos in this series we’ve looked at a simplified Solow model. On one end of the model is input, and on the other end, we get output. What do we do with that output?
Either we can consume it or we can save it, says Alex Tabarrok of Marginal Revolution University. This saved output can then be re-invested as physical capital, which grows the total capital stock of the economy. There’s a problem with that, though: physical capital rusts.
(If you find the pace of the videos too slow, I’d recommend watching them at 1.5 to 2 times the speed. You can adjust the speed at which the video plays by clicking on “Settings” (the gear symbol) and changing “Speed” from normal to 1.25, 1.5 or 2.)
Click here to see other videos in the Introduction to Economics series.