Question

What does the neoclassical growth model say should be the long run

impact of technological progress?

Answer 1

Neoclassical growth model is defined as an economic growth model that explains how the economic growth rate is accomplished with the three driving forces i.e. capital , labour and techonlogy. Earlier this theory stated that if in any production function the amount of labour or capital are changed , short-term equilibrium of an economy could be achieved. It was Robert Solow who first incorporated the techonological change in this model of long-run economic growth in the late 1950's . Thus, the extended growth theory explains that techonological change has a major influence on the economy and the growth of the economy is impossible without the techonological advances. Hence, the long-term equilibrium of an economy cannot be achieved without any of these three factors. Since, the labour and capital are the limited resources of an economy , the techonology is boundless in its contribution to the final growth and the resulting output produced by an economy.

Thus , it is clear that the techonological progress plays a leading role in the growth of the economy and the neoclassicists also consider it as a catalyst for innovations and the economic growth and development.