Neoclassical Growth Theory

AAA

DEFINITION of 'Neoclassical Growth Theory'

An economic theory that outlines how a steady economic growth rate will be accomplished with the proper amounts of the three driving forces: labor, capital and technology. The theory states that by varying the amounts of labor and capital in the production function, an equilibrium state can be accomplished. When a new technology becomes available, the labor and capital need to be adjusted to maintain growth equilibrium.

INVESTOPEDIA EXPLAINS 'Neoclassical Growth Theory'

This theory emphasizes that technology change has a major influence on economic growth, and that technological advances happen by chance. The theory argues that econonomic growth will not continue unless there continues to be advances in technology.

RELATED TERMS
  1. Capital

    1) Financial assets or the financial value of assets, such as ...
  2. Endogenous Growth

    The notion that policies, internal processes and investment capital, ...
  3. Exogenous Growth

    The belief that economic growth arises due to influences outside ...
  4. Circular Flow Of Income

    The circular flow of income is a neoclassical economic model ...
  5. Uneconomic Growth

    When economic growth produces negative external consequences ...
  6. Equilibrium

    The state in which market supply and demand balance each other ...
Related Articles
  1. Is Growth Always A Good Thing?
    Markets

    Is Growth Always A Good Thing?

  2. Great Company Or Growing Industry?
    Markets

    Great Company Or Growing Industry?

  3. Understanding Supply-Side Economics
    Economics

    Understanding Supply-Side Economics

  4. Can You
    Trading Strategies

    Can You "Learn" The Stock Market?

Hot Definitions
  1. Halloween Strategy

    An investment technique in which an investor sells stocks before May 1 and refrains from reinvesting in the stock market ...
  2. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  3. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  4. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  5. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
  6. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
Trading Center