What are the assumptions underlying the three macro models for establishing long-run economic growth?

Economics Dec 14, 2020

Expert Solution

The assumptions in the macroeconomic models for establishing long-run growth are:

1.) In the long run, the model is designed in nominal terms. It includes the effect of inflation in cost or revenue.

2.) Another assumption of the macroeconomic model is the risk-free interest rate. The minimum expected return of investors is estimated by using risk-free assets.

3.) When the borrowings are in foreign currency or if there is any source of foreign capital, exchange rates are a relevant concept.

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