Question

Derive the equilibrium in the Endogenous Growth Model. According to this model, what is the source of economic growth?

Answer 1

Endogenous Growth Model was developed as a recreation to omissions and defeciencies in the Solo Swan neoclassical growth model. it is a new theory which explains the long run growth rate of an economy on the basis of endogenous factors.The endogenous growth models emphasise technical progress resulting from the rate of investment the size of the capital stock and the stock of human capital.The AK model which is the simplest endogenous model gives a constant savings rate of endogenous growth and assumes a constant exogenous saving rate. it uses the assumptions that he production function does not exhibit diminishing returns to scale to lead to endogenous growth.

The source of economic growth in the endogenous model is the government policies effects on the long run permanent growth rate of the economy. variations in the standard of living accross the countries income per capita increasesd.