Answer to Question #220329 in Macroeconomics for Nana K

Question

Outline the key propositions of the ‘new’ (endogenous) growth theory.
(b) Explain briefly two strengths and two limitations of the endogenous growth theory in
practice.

Answer 1

a) The new growth paradigm assumes that people's desires and wants will continue to fuel productivity and economic progress. Competition squeezes profit, requiring people to always seek better methods to do things or innovate new goods in order to optimize profitability, according to new growth theory.

b) One of the biggest criticisms aimed at the endogenous growth theory is that it is impossible to validate with empirical evidence. The theory has been accused of being based on assumptions that cannot be accurately measured.