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. Markets

    Is Growth Always A Good Thing?

    Getting big quickly looks good, but companies can get into trouble when they do it too fast. Find out how to spot this trouble.
  2. Markets

    Great Company Or Growing Industry?

    Look at the big picture when choosing a company - what you see may really be a stage in its industry's growth.
  3. thinkstock|istock
    Economics

    Understanding Supply-Side Economics

    Does the amount of goods and services produced set the pace for economic growth? Here are the arguments.
  4. Trading Strategies

    Can You "Learn" The Stock Market?

    All of the knowledge in the world won't ensure the perfect trade every time - but is it possible to improve your odds in the market?
  5. Economics

    What Are Economies Of Scale?

    Is bigger always better? Read up on the important and often misunderstood concept of economies of scale.
  6. 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.
  7. 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.
  8. 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 ...
  9. 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.
  10. 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.

You May Also Like

Hot Definitions
  1. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  2. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  3. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  4. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  5. SWOT Analysis

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

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
Trading Center