Question

What is Schumpeters theory and what did he study?

Answer 1

Schumpeter's Theory of Innovation is in line with the other investment theories of the business cycle, which suggests that the rise in investment followed by monetary expansion is the main factors behind business fluctuations, but Schumpeter's Theory maintains that business innovation is the main reason for increased investment and business fluctuations.

According to Schumpeter, both industrial and commercial, the cyclical cycle is almost entirely the product of organizational creativity. Through innovation he means improvements in manufacturing and transportation methods, development of a new product, improvement in the organization of business, opening up a new market, etc. The innovation does not mean creativity but applies to the commercial applications of new technology, new materials, new methods and new energy sources.

To order to further clarify his theory of innovation on the business cycle, Schumpeter built a model to two phases, i.e. first approximation and second approximation. The first approximation focuses on the primary effect of innovative ideas, while the second approximation focuses on the resulting responses from the implementation of innovations.