Endogenous Versus Exogenous Growth Theories
Ron Justesen
American Military University
Macroeconomics for Business
ECON202
Professor Richard Leiter
September 23, 2016 Endogenous Versus Exogenous Growth Theories
Introduction
Classical economic growth theories consider labor, capital, and technology to be factors of output or GDP. Some theories vary on whether these factors are exogenous or endogenous and over the last few decades the consensus seems to lean toward an endogenous theory; although, there is still criticism of the endogenous growth theory because much of it relies on assumptions that are difficult if not impossible to measure, such as the correlation between education and innovation. There is no debate that technology is
…show more content…
This theory is based on the idea that innovation manifests itself in the form of new products and processes which are part of economic activity (Howitt, 2010). Human capital and experience is considered by this theory to increase productivity as well. Many improvements of technology, products, and processes come from research and development and quality costs that businesses invest in. In this way, endogenous growth theory shows that the factor of technology in the growth of the economy is …show more content…
For those who subscribe to the neoclassical point of view, it would seem that government fiscal policy can affect economic growth only in the short run, and that long run economic growth is left to be determined by exogenous factors. On the other side of the fence are those who trust in the endogenous and new economic growth theory that the government’s fiscal policy and a country’s economic state can affect the factor of technology through fostering innovation and an increase in human
As a result of the Great Recession of 2007 to 2009, the United States government implemented various fiscal policies in an effort to stimulate the economy. How the government responded as well as how those responses will affect the U.S. economy into the future are the focus of a proposed research study. In order to ensure an appropriate focus for the proposed research study, problems in existing literature must be evaluated.
In today’s economy, fiscal policy plays a vital role in influencing the financial direction and economic goals of the United States. Furthermore, government spending and taxation are two main economic activities that influence a nation’s economy and are generally referred to as the fiscal policy. Not only does the fiscal policy help determine a nation’s budget, but it also determines how much resources need to be allocated to help achieve their economic goal. Therefore, the fiscal policy has many functions and consists of allocating, distributing, stabilizing and developing the nation’s economy.
In the equation above it the product of K and P that is responsible for economic growth. It would appear then that K, the ratio of productive to unproductive labor, and P, the productivity rate are equally important factors in this determinance. However, Smith says that this is not so. The ratio of productive to unproductive labor does not change much over time, says Smith.
One of the major causes leading to economic inequality is the growth of technology. Over the past twenty-five years, technology has made improvements in productivity and has played a huge role in the life of everyday society
This paper is briefing of book called “Race against the Machine” written by Erik Brynjolfsson and Andrew McAfee. This paper focuses on the impact of technology on the current employment issues. Three explanations of current economic issues that is cyclical, stagnantion and “end of work” is provided (Brynjolfsson & McAfee, 2011). Then the idea of excessive progress in technology making man jobless is presented and to support it various arguments are put forward. Secondly the idea of technology development causing division of labor into high skilled, low skilled, capital, labor, superstars and ordinary labors is presented and explained in detail. Finally remedies for solving these issues are presented and explained. Major takeaways of this paper are mismatch between the productivity and job creation, interlink between Technology improvement and division of labor and importance of education in building stable skilled labors and in the developing a stable society. (Brynjolfsson & McAfee, 2011)
Economic growth focuses on encouraging firms to invest or encouraging people to save, which in turn creates funds for firms to invest. It runs hand-in-hand with the goal of high employment because in order for firms to be comfortable investing in assets such as plants and equipment, unemployment must be low. Hereby, the people and resources will be available to spur economic growth.
Compare and contrast the Solow Growth Model with one Endogenous Growth Model In order to compare two models of economic growth, I will look at the primary model of exogenous growth, the Solow model, and ArrowÂ’s endogenous growth theory, based on research and development generated within the system. I will define the models and identify their similarities and differences. The Solow model, or Neoclassical growth model as it is sometimes known, is an example of exogenous growth models. This is to say that the level of economic growth depends on externally determined rates of growth in certain variables.
Everyone has their own political leaning and that leaning comes from one’s opinion about the Government. Peoples’ opinions are formed by what the parties say they will and will not do, the amounts they want spend and what they want to save. In macroeconomic terms, what the government spends is known as fiscal policy. Fiscal policy is the use of taxation and government spending for the purposes of stimulating or slowing down growth in an economy. Fiscal policy can be used for expansionary reasons, which is aimed at growing the economy and increasing employment, or contractionary which is intended to slow the growth of an economy. Expansionary fiscal policy features increased government spending and decreases in the tax rates as where contractionary policy focuses on lowering government spending and increasing tax rates. It must be understood that fiscal policy is meant to help the economy, although some negative results may arise.
During the time of economic crisis starting around 2010 different rationalities have been taken to try and continue economic growth while maintaining a stable government system that is helping and not hurting. When examining government spending and how it affects the growth of the Gross Domestic Product (GDP) there seems to be disagreements on if it was helping or damaging the prospective growth that could be made. By using the Multiplier Effect the government can estimate how to adjust their government spending and how it effects the spending of the consumer, investments and spending of country’s exports.
After analyzing the data and the theory, we have provided our conclusion weather tax cut is better for the stimulation of growth or Government spending is? This report explains the big macroeconomic debates of the present times. It seeks to explore the debate within fiscal policy itself between tax cuts and government spending. We have tried to explain the argument through some theories and through some data collected from Indian econ...
Government spending is not a major part in the Classical Theory. It is more focused on consumer spending and business investment because they are the most important parts of economic growth. Classical economists believe that too much government spending will increase the public sector and decrease the private sector where wealth is created. This theory is mainly focused on making long term solutions to economic problems. Classical economists also take into consideration how new theories and current policies will effect, negatively or positively, the free market environment (Differences).
Two internal barriers to economic growth and development are International trade and Political barriers. Barriers prevent and restrict development in some countries. While some things are barriers to economic growth some are barriers to economic development. In this case being international and having a political sense is a barrier to both thoughts. Change and the process of development is a multi-generational process.
This change brings about new product and services thereby creating new avenues of wealth creation in an economy. For example, with advent to online market places, goods and service from different regions can easily be advertised, paid for, sold and shipped easily providing different levels of employment and income models such as for shipping companies, mobile money processing service providers, internet connectivity companies among other opportunities. This diversified creation of opportunities increases production and boosts an economy’s real GDP. In this way, the opportunity cost of the above example is increased cost of training of workers for the new skills required to perform above tasks. This said, the advantages of technological change out-weigh the associated training costs. Consequently, governments and economists support technological change despite risks of structural
In order for any country to survive in comparison to another developed country they must be able to grow and sustain a healthy and flourishing economy. This paper is designed to give a detailed insight of economic growth and the sectors that influence economic growth. Economic growth in a country is essential to the reduction of poverty, without such reduction; poverty would continue to increase therefore economic growth is inevitable. Through economic growth, it is also an aid in the reduction of the unemployment rate and it also helps to reduce the budget deficit of the government. Economic growth can also encourage better living standards for all it is citizens because with economic growth there are improvements in the public sectors, educational and healthcare facilities. Through economic growth social spending can also be increased without an increase of taxes.
It is natural to be misled by the idea that economic growth is the key