Question

Endogenous growth is most closely associated with what theory of economic development?

Choose one:

A. Todaro's model of growth

B. the Solow model

C. New Growth Theory

D. classical growth theory

Answer 1

The answer is option C: New growth theory.

Endogenous growth theory states that growth results from human capital, technology, and investment. This theory also states that development does not depend on exogenous factors.

Solow model:

In the Solow model, saving leads to growth temporarily, but diminishing returns to capital eventually forces the economy to approach a steady-state where growth depends only on exogenous technological progress. By contrast, in this endogenous growth model, saving and investment can lead to continued growth. So it is not related to endogenous growth.

Todaro's model of growth

This theory states that an equilibrium is reached when the expected wage in urban areas is equal to an agricultural worker's marginal product. The model assumes that unemployment is non-existent in the rural farming sector. There is no clear relation to endogenous growth here.

Classical growth theory

This theory states with constant technology and increasing inputs will lead to diminishing returns. So, it's a relation far from endogenous growth because firms may not invest in technology for fear of struggling in a competitive market.

New growth theory:

It is an economic concept, positing that humans' desires and unlimited wants foster ever-increasing productivity and economic growth.

Endogenous growth models emphasized the concept of human capital and how workers with more excellent knowledge, education, and training can increase technological advancement rates.

This theory emphasizes the government to encourage technological innovations, which aligns with the endogenous growth model.