Classical Growth Theory

AAA

DEFINITION of 'Classical Growth Theory'

A theory on economic growth that argues that economic growth will end because of an increasing population and limited resources. Classical Growth Theory economists believed that temporary increases in real GDP per person would cause a population explosion that would consequently decrease real GDP.

INVESTOPEDIA EXPLAINS 'Classical Growth Theory'

Economists behind this theory developed an idea of a "subsistence level" to model the theory. They believed that if real GDP rose above this subsistence level of income that it would cause the population to increase and bring real GDP back down to the subsitence level. It was sort of like a equilibrium level that real GDP would always revert to in this theory. Alternatively, if the real GDP fell below this subsistence level, parts of the population would die off and real income would rise back to the subsistence level.

RELATED TERMS
  1. Classical Economics

    Classical economics refers to work done by a group of economists ...
  2. Macroeconomics

    The field of economics that studies the behavior of the aggregate ...
  3. Real Gross Domestic Product (GDP)

    An inflation-adjusted measure that reflects the value of all ...
  4. Aggregate Hours

    The sum of the hours worked by all employed people, either full ...
  5. Global Recession

    An extended period of economic decline around the world. The ...
  6. Marginal Rate of Technical Substitution

    The rate at which one factor has to be decreased in order to ...
Related Articles
  1. Austrian School of Economics, von Hayek
    Economics

    The Austrian School Of Economics

    Investopedia explains: If you think economists are only concerned with numbers, check out the Austrian School, who are more like economic philosophers.
  2. Options & Futures

    Nobel Winners Are Economic Prizes

    Before you try to profit from their theories, you should learn about the creators themselves.
  3. Bonds & Fixed Income

    Can Keynesian Economics Reduce Boom-Bust Cycles?

    Learn about a British economist's proposed solution to a common economic problem.
  4. Economics

    What are the major differences between a monopoly and an oligopoly?

    The major differences between a monopoly and an oligopoly include the number of firms in the market, type of barriers to entry and presence of close substitutes.
  5. Chart Advisor

    OPEC's Decision Sends Oil Stocks Lower

    OPEC’s decision to keep oil production on cruise control has led to declining prices. Here's a look at 3 oil stocks that have followed suit.
  6. The law of supply and demand is one of the most basic principles in economics.
    Economics

    What is Supply & Demand?

    The law of supply and demand is one of the most basic principles in economics. In simplest terms, the law of supply and demand states that when an item is scarce, but many people want it, the ...
  7. Economics

    Why does inflation increase with GDP growth?

    Examine the relationship between inflation and GDP, and why GDP growth leads to higher prices. Explore the effects of uncontrolled inflation and GDP growth.
  8. Economics

    How does the Circular Flow Of Income model work?

    Learn about the circular flow of income model used by economists to represent the continuous, interdependent nature of money movement in a market.
  9. Economics

    How did World War II impact European GDP?

    Understand the effect of World War II on the European gross domestic product and what foreign and domestic factors influenced this change.
  10. What is GNP?
    Economics

    What's the GNP?

    Gross national product (GNP) is one of many metrics economists use to measure a country’s economic output. For any one year, GNP equals the market value of all the goods and services produced ...

You May Also Like

Hot Definitions
  1. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  2. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  3. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
  4. Annual Percentage Rate - APR

    The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents ...
  5. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
  6. Law Of Supply And Demand

    A theory explaining the interaction between the supply of a resource and the demand for that resource. The law of supply ...
Trading Center