Illustrate neo-classical growth model, Macroeconomics

Assignment Help:

Q. Illustrate neo-classical growth model?

The main purpose of another significant growth model, neo-classical growth model, is to explain how it is possible to have a permanent growth in GDP per capita. The model was developed by Robert Solow in 1960s and it is sometimes known as the Solow growth model or the exogenous growth model.

Neo-classical growth model must not be confused with the neoclassical synthesis. 'Neo' means 'new' - the neo-classical growth theory is a 'new version' of the classical growth model. 

Crucial difference between classical and neo-classical growth model is that population is endogenous in the former and exogenous in the latter. In the classical model, population will increase or decrease depending on whether GDP per capita is higher than or lower than survival level. In the neo-classical model population growth isn't affected by GDP per capita (though the population growth will affect the growth in GDP per capita). 

In the neo-classical model, it's the technological progress only that affects GDP per capita in the long run. We will have a permanent increase in GDP per capita when there is a technological development which increases productivity of labour. Permanent growth in GDP then requires continuous technological progress. 

It isn't possible for the government, except temporarily, to affect growth rate in the neo-classical growth model. Government may be able to affect GDP per capita (and so is the growth rate) however the growth rate always returns to the level determined by technological progress. The same is true for savings. An increase in savings may have a temporary effect on GDP though it will have not any effect in the long run.


Related Discussions:- Illustrate neo-classical growth model

Solve equilibrium price and the equilibrium quantity, Suppose that a widget...

Suppose that a widget market is described by the following supply and demand equations. Supply: Q = 3 P Demand: Q =400 - P a. Solve for the equilibrium price and the

monetary account , link of monetary account with other sectors and its mea...

link of monetary account with other sectors and its meaning

Damaging to the economy, Why do financial crises occur and why are they so ...

Why do financial crises occur and why are they so damaging to the economy?

Arc price elasticity of demand, The Stop decay company sells an electric to...

The Stop decay company sells an electric toothbrush for $25. Its sales have averaged 8,000 units per month over the past year. Recently, its closest competitor, Decay fighter, redu

Demand, Demand: Demand is quantity of a good buyer who wishes to purcha...

Demand: Demand is quantity of a good buyer who wishes to purchase at each conceivable price. The law of demand explains us that if the price of certain commodity increases,

Demand for money, what is the meaning of the statement ''money is not merel...

what is the meaning of the statement ''money is not merely a veil or wrapper''?

Michaels indifference curve and dwights indifference curve, Suppose that Mi...

Suppose that Michael and Dwight each have a $60 weekly entertainment budget. They pay the same prices for two goods, "an evening reading books" (an ERB) and "an evening of beer and

Var model, The estimated statistics from the VAR model are not able to be i...

The estimated statistics from the VAR model are not able to be interpreted to solve the problem of this coursework due to reasons that are discussed in the next subchapter. Therefo

Financing of the external payments deficit, Financing of the external payme...

Financing of the external payments deficit: The trend  in India's widening CAD during the second half of  the eighties, both in absolute terms and also as a proportion of the

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd