The differential equation that describes the path of capital per worker in the Solow Growth Model is derived from combining the capital accumulation equation with the production function. It typically takes the form k = sy - (n + δ)k, where sy represents the savings per worker and (n + δ)k represents depreciation and population growth loss. Solving this differential equation shows how capital per worker evolves over time, and the solution indicates the existence and characteristics of the equilibrium state, where the change in capital per worker is zero. Analyzing this solution allows for assessments of the model's dynamics and stability by determining how perturbations from equilibrium are corrected .

The steady-state value of capital per effective worker in the augmented Solow Model is derived by setting the net change of capital per effective worker equal to zero. This involves equating savings per effective worker with depreciation and the growth of effective labor. The qualitative analysis reveals that, unlike the basic model, technological growth introduces an effective growth rate for labor that affects the steady state's dynamics. As technological progress increases, it raises the steady-state output per effective worker, causing growth in income per capita even when the capital stock remains constant on a per-effective-worker basis .

The Solow Growth Model explains the concept of diminishing returns to capital through its production function, where each additional unit of capital yields less output than the previous unit due to fixed labor input and technology levels. This implies that as an economy accumulates more capital, the growth rate of output per worker decreases unless there is concurrent technological progress or population change. In terms of long-term growth, this suggests that economies cannot sustain high growth rates solely by increasing capital; instead, they must rely on technological innovations or improvements to maintain economic growth and enhance productivity .

The golden rule steady state (GRSS) in the Solow Growth Model is characterized by the level of capital per worker that maximizes steady-state consumption per worker. Analytically, this is determined by setting the derivative of consumption per worker with respect to capital per worker to zero. This condition leads to the equation where the marginal product of capital equals the depreciation rate plus the population growth rate. At this point, any increase or decrease in capital would lead to lower consumption per worker, verifying it's the optimal point for maximum consumption .

In the augmented Solow Growth Model, the differential equation for capital per effective worker is derived by considering the balance between capital accumulation and the effective depreciation rate (which includes the technological growth rate). The equation is typically expressed as k = sy/n+g - (δ + n + g)k, indicating per-effective-worker savings adjusted for effective depreciation. This equation is pivotal for understanding economic dynamics as it informs how economies transition toward their steady state, the impact of technological advancements, and the resulting changes in productivity and growth rates. It highlights how capital and technological progress jointly influence economic stability and progress .

In the Solow Growth Model without technological progress, national savings play a critical role in determining the equilibrium state of capital per worker. The model establishes a steady-state where the amount of investment per worker matches the amount of depreciation and capital loss per worker. Savings, being a constant fraction of the national product, influence the level of investment available for capital accumulation. Therefore, higher savings rates lead to higher equilibrium levels of capital per worker. The equilibrium state is characterized by this balance, and its stability can be analyzed using phase diagrams, which show that perturbations from the equilibrium will lead to adjustments back towards this steady state due to changes in capital accumulation relative to depreciation .

Introducing effective labor into the Solow Model alters both the steady state and growth predictions by incorporating technological progress directly into the labor input. This change results in a modified steady state, where the growth rate of output per worker depends on the rate of technological progress rather than solely on capital accumulation. The inclusion of effective labor predicts sustained growth in output per worker, driven by continuous technological improvements, and leads to a steady state where increases in effective labor due to technology boost overall productivity, even as physical capital accumulation stabilizes. This addition significantly enhances the model's applicability to real-world scenarios characterized by ongoing technological advancements .

The effective labor force in the Augmented Solow Growth Model accounts for both the number of workers and the impact of technological improvements, modifying the model's outcomes by enabling sustainable long-term economic growth. This is significant because it allows the model to incorporate technological progress as a driver of increased productivity, which maintains growth even when physical capital accumulation reaches a steady state. This adjustment reshapes the relationship between inputs and outputs, highlighting how technological advances can offset diminishing returns to capital and enable continuous improvements in living standards .

The per-worker production function in the standard Solow Growth Model is derived from the aggregate production function by dividing through by the number of workers. If the production function is Y = AK^αL^(1-α), the per-worker production function is y = k^α, where y = Y/L and k = K/L. This function exhibits constant returns to scale in terms of capital (k) per worker because for any proportional increase in inputs, output increases proportionally, demonstrating that doubling inputs such as capital and labor will double output, characterizing constant returns .

Technological progress in the Solow Growth Model is incorporated by redefining the labor force to include effective labor, which accounts for technological improvements alongside the number of workers. This augmented model introduces a variable for technological growth, impacting the rate at which effective labor grows. With technological progress, the production function is adjusted to account for effective labor, altering the dynamics and equilibrium conditions of the model. As a result, output per worker grows at the rate of technological progress (g) in the steady state, allowing economies to achieve sustainable growth even when capital accumulation per worker stabilizes .