Write consumption per worker as a function of the capital stock in steady-state. The Solow Growth Model is an exogenous model of economic growth that analyzes changes in the level of output in an economy over time as a.New investment adds to capital stock. Draw the labor market and capital market diagrams (as in the simple production model). This is a very useful tool for not only understanding the model and seeing how the variables all fit together and change over time. Other variables follow from their relations to the capital stock: we can find output from the production function, saving (= investment) from. The capital stock cannot grow faster than effective labor for a long time because of decreasing returns to capital. According to your graph, what is the steady state capital stock? A key component of economic growth is saving and investment. Growth rate of capital declines as the capital stock increases.