Chapter 3 — The neoclassical growth model
Study guide · Macroeconomics for Public Policy
The Solow model takes the saving rate as given. This chapter asks what happens when households choose how much to save, weighing consumption today against consumption tomorrow. The answer, the Ramsey–Cass–Koopmans or neoclassical growth model, delivers the most important equation in macroeconomics, the Euler equation. It also delivers a toolkit for dynamic analysis (Hamiltonians, phase diagrams, saddle paths) that the rest of the book uses again and again. For policy, it says how much a society should save, and why optimal saving never piles up more capital than the golden rule. It also leaves a puzzle: income per person still does not grow in the long run.
How to use this guide
Every page is layered into three cumulative tiers. Read as deep as you need:
| Tier | For | Suggested path |
|---|---|---|
| 🟢 Core | Undergraduates | Summary → Key graphs → Quiz (🟢 items) → Exercises (🟢) → Data lab (run & interpret) |
| 🔵 Advanced | Advanced undergraduates · Master’s in Public Policy | Core path + 🔵 bullets → Case studies → Exercises (🔵) → Data lab (“Your turn”) |
| 🔴 Frontier | Doctoral students | Advanced path + Derivations → Exercises (🔴) → Data lab (extensions) → Further reading |
Study materials
| Material | Open | |
|---|---|---|
| 🟢 | Summary | Open |
| 🟢🔵 | Key graphs | Open |
| 🟢🔵🔴 | Exercises | Open |
| 🟢🔵🔴 | Concept-check quiz | Open |
| 🟢🔵🔴 | Data lab | Open |
| 🔵 | Applications & case studies | Open |
| 🔴 | Derivations | Open |
| 🟢🔵🔴 | Further reading | Open |
| 🟢 | Cheat sheet | Open |
| 🟢 | Lecture slides — Core | Open deck |
| 🔵 | Lecture slides — Advanced | Open deck |
| 🔴 | Lecture slides — Frontier | Open deck |
| 💻 | Model notebook | Open in Colab · View |
| 💻 | Data-lab notebook | Open in Colab · View |
| 🤖 | AI tutor prompt | Open |
| 🗺️ | Mind map | 🚧 pending |
| 📖 | Book chapter | Read |
Macroeconomics for Public Policy: A Study Companion to Advanced Macroeconomics (Filipe Campante, Federico Sturzenegger and Andrés Velasco, LSE Press 2021, CC BY-NC 4.0). Study materials released under CC BY-NC 4.0.