What Is the Neoclassical Evolvement Theory?
Neoclassical growth theory is an economic theory that outlines how a steady economic growth rate results from a association of three driving forces—labor, capital, and technology. The National Bureau of Economic Research names Robert Solow and Trevor Swan as having the confidence of developing and introducing the model of long-run economic growth in 1956. The model first considered exogenous population expands to set the growth rate but, in 1957, Solow incorporated technology change into the model.
- Robert Solow and Trevor Swan word go introduced the neoclassical growth theory in 1956.
- The theory states that economic growth is the result of three factors—labor, property, and technology.
- While an economy has limited resources in terms of capital and labor, the contribution from technology to growth is unstoppable.
How the Neoclassical Growth Theory Works
The theory states that short-term equilibrium results from varying amounts of labor and excellent in the production function. The theory also argues that technological change has a major influence on an economy, and economic improvement cannot continue without technological advances.
Neoclassical growth theory outlines the three factors necessary for a swell economy. These are labor, capital, and technology. However, neoclassical growth theory clarifies that temporary equilibrium is other from long-term equilibrium, which does not require any of these three factors.
Special Consideration
This nurturing theory posits that the accumulation of capital within an economy, and how people use that capital, is important for economic proliferation. Further, the relationship between the capital and labor of an economy determines its output. Finally, technology is thought to augment labor productivity and grow the output capabilities of labor.
Therefore, the production function of neoclassical growth theory is used to measure the growth and equilibrium of an conservation. That function is Y = AF (K, L).
- Y denotes an economy’s
Example of the Neoclassical Growth Theory
The authors find a consensus among different economic perspectives all points to technological metamorphose as a key generator of economic growth. For example, neoclassicists have historically pressured some governments to invest in scientific and digging development toward innovation.