# Macro

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Endogenous growth theory addressed limitation associated with the neo classical growth model. To what extent is this assertion valid?

Introduction Neo classical growth model is an approach in economics focusing on the determination of price, output and income distributions in markets through supply and demand. These is done through a hypothesized maximization of income- constrained utility by individuals and of cost constrained profits of firms employing available information and factors of production. This economic model was developed from the classical school of economics, which was dominant in the eighteenth and nineteenth centuries. It can be traced to the marginal revolution of the 1860’s, which came up with the concept of utility as a key factor in deterging value in contrast to the classical views that the costs involved in production were value’s determinant. The Neo classical approach became increasing mathematical, focusing on the perfect competition and equilibrium. Neo classical growth model considered two factors production function with capital and labour as determinants of output. Besides, it added exogenously determined factor, technology, to the production function. Neo classical growth model uses this production function: Y=AF (K, L)……….(1) Y= Gross Domestic Production (GDP) K= Stock of Capital L= Amount of unskilled labour A= Exogenously determined level of technology. *Note a change in this exogenously variable and technology, will cause a shift in production function. There are two ways in which technology parameter A is incorporated in the production function. The popular way of incorporating the technology parameter in the production function is to assume that technology is labour augmenting and accordingly the production function is written as; Y=F (K, AL)…………(2) *Note that labour- augmenting…...

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