neoclassical vs. endogenous growth theory

CFA Level II
#1

What are your way to remember these two concepts?

#2

End ogenous - nothing stops the growth because companies give back to society, society contributes to technological advancement. END less cycle

Neoclassical - Technological advancement leads to short term economic growth, permanent higher standard of living (Y/L), but you cannot grow beyond the sustainable growth rate

I’d put more effort into remembering the major tenants of Neoclassical theory as it encompasses more material than Endogenous theory.

1 Like
#3

How are you memorizing the neoclassical theory?

#4

There’s isn’t that much to remember honestly.

3 major tenants as I mentioned, and another tenant from the formula (sustainable growth rate)

From the formula: Growth rate of output = [growth in technology/(1-alpha)] + growth of labor, you can tell Neoclassical assumes once steady state is achieved, capital deepening won’t have affect on growth rate.

If you really need help remembering,

Classical - you can grow, but people will rush in, now the growth is distributed among more people. you’re not better off

Neoclassical - you can grow, you are better off, but you can’t get pass the sustainable growth rate

Endogenous - you can grow, you are better off, and you can continue to be even better off

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#5

Dont memorize… Understand. There’s way too much material to memorize for L2, you will mix up numbers and nouns with verbs.

#6

Well at this point i dont think we have much of a choice…

#7

Thanks

#8

So a good way I understand this is…

  1. Classicial - no long term growth in the economy

  2. Neoclassical - Long term growth is constant

  3. Endogenous - Long term growth rate can change over time with technological investment

#9

Yes, those are all good starting point to remember. You’ll have to be able to elaborate a lot more during the test as the questions are a more tricky than just those points.

#10

[quote=“lemumu”]

There’s isn’t that much to remember honestly.

3 major tenants as I mentioned, and another tenant from the formula (sustainable growth rate)

From the formula: Growth rate of output = [growth in technology/(1-alpha)] + growth of labor, you can tell Neoclassical assumes once steady state is achieved, capital deepening won’t have affect on growth rate.

If you really need help remembering,

Classical - you can grow, but people will rush in, now the growth is distributed among more people. you’re not better off

Neoclassical - you can grow, you are better off, but you can’t get pass the sustainable growth rate

Endogenous - you can grow, you are better off, and you can continue to be even better off

{Tenants or Tenets}