Neo-classical Growth Theory

Neo-classical Growth Theory explains economic growth through the accumulation of resources like labor, capital, and technology. It suggests that when an economy invests in machines, infrastructure, and education, productivity increases, leading to higher income over time. However, as these inputs grow, the returns tend to diminish, meaning growth slows down unless innovation or technological progress occurs. The theory emphasizes that sustainable long-term growth relies on technological advancements that boost efficiency. It also highlights the importance of saving and investment to fund this growth, with equilibrium reached when the economy's output stabilizes based on these factors.