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Neo-classical Theory of Economic Growth in Developing Countries

   

Added on  2020-11-12

10 Pages3705 Words252 Views
THE ECONOMICS OFSUSTAINABLEDEVELOPMENT

TABLE OF CONTENTSINTRODUCTION...........................................................................................................................3MAIN BODY...................................................................................................................................3Critically evaluate the Neo-classical theory of economic growth ..............................................3Discuss whether foreign aid causes economic growth in developing countries..........................5CONCLUSION................................................................................................................................8..........................................................................................................................................................9REFERENCES..............................................................................................................................10

MAIN BODYCritically evaluate the Neo-classical theory of economic growth The neo classical theory helps in the Economic Growth, which is refereed as the is thepractice which is related to the incremental value of the total produced goods and servicesover a specific duration. It is measured as the rate of percentage depending on the realgross domestic product. This growth rate is the indicators for evaluation of the businessconfidence index in terms of GDP and GNP. Neo classical theory is one of the importanttheories that brought landmark changes on the economic growth. This theory is aneconomics approach to understand the supply and demand of the mathematical equationsin real time for maximising the profits or utilities. It lay emphasis on customers' satisfactionand products utility as well. There is a strong influence of the consumers' perception on thedemand and value of the products. Another neo classical principle involves the farsightedness attached with the valuable amount of a product and its total worth in themarkets (Lundahl and Wadensjo, 2015). In regard to this, there have been few assumptionsthat are based on few factors such as technology, capital and labour. The assumptions aremainly dealing with capitalizing the product's satisfaction by taking the decisions rationallyand optimizing the products utility on the affordability parameter. However, the prime focus is on gaining insights of both utility and profit generations sincetechnological modifications are proportional in terms of progression. This Solow theoryemphasized on research development for gaining utilities or profits that further acts asinnovation booster and assist in the socio-economic business environment of theorganization (Blackwell et.al., 2016). Herein the fundamental equation of growth is asfollows:Y= F (K,eL,A)Where Y is Gross Domestic Product (GDP), K is the stock of capital, eL is the amount ofeducated labour and A is exogenously determined level of technology.3

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