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Economics

EQ_ArbitrageEQ_Arbitrage United StatesPosts: 8 Associate
Looking for a clear distinction between Classical and Neoclassical Growth Theory.  

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  • That's kind of loaded question. There are many differences but for the exam I could boil it down to two words for you;  subsistence level. Classical theory contends that any growth in gdp per capita above that nations mean reverting level, or subsistence level, will cause a people to feel wealthier and hence be able to afford more babies. More babies, more people, bigger population which is a larger denominator in the gdp per capita ratio. Bringing us back to subsistence. This is not supported in empirical evidence though.  
  • EQ_ArbitrageEQ_Arbitrage United StatesPosts: 8 Associate
    Thank you.  So how would you conceptualize Neoclassical Growth Theory? 
  • Sticking with the high level concepts. Neoclassical in 4 words....steady state growth rate. They contend that all nations have a steady state growth rate where further capital deepening will not improve productivity. The way to increase productivity per unit of labor is via TFP (technology) aka total factor productivity. Know the formula TFP/labor share of gdp. This is the steady state growth rate.
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