Question

What do the different growth models identify as the key determinants of economic growth? Identify two key limitations of the neoclassical growth model in explaining contemporary developing country experiences. Finally, compare and contrast Neoclassical, Marxian and Keynesian economic theories.

Answer 1

The key determinants of economic growth as per he different growth model are

1. Human Resources

2. Natural Resources

3. Capital Formation

4. Technology

Two limitations of Neo-classical growth model-

They does not take into account the significance of key economic factors

1. Degree of political stability

2. Attitude of Population.

3. Function of legal and social institutions.

4. Role of Government.

They believed that economic development is a continuous and gradual process and unable to analysis the possibilities of cyclical fluctuations in an economy, which helps to understand economic growth.

Contrast-

Neoclassical Growth Model focuses on the determination of goods and output and income distribution in market which affects supply and demand.

-it gives preferences to people and how they act when relevant information available.

-It tells about maximum utility of individual and maximum profit of industry.

-This model is based on aggregate supply.

Marxian economic growth is focuses on labour and employment for the economic development and also tells about no government control in market.

Keynesian economic model is focuses on the total spending in an economy and how it affects output, employment and inflation. It tells to increase government expenditure and low down taxes to stimulate supply and demand.

It is based on aggregate demand.

Comparison

Keynesian and Marx both model found fault in the capitalist system.

Both model identified how the low capital investment impacted the economy.

Though there is differences between Marxian and neo-classical economics but both helps to understand that-

1. How individual will interact

2. Power structure in society

3. Role of Financial System

Keynesian and neoclassical both model tells that aggregate demand is a useful tool to control inflation and argues that it can be helpful to control recession.