Answer to Question #285928 in Macroeconomics for Shek Ahmed

Question

Without assuming exogenous technological progress, how does the endogenous growth model, e.g., the Y= AK model, explain income growth? Use algebra to demonstrate it. What is the difference between this explanation and that of the Solow model? Be aware how Solow model explains income growth.

Answer 1

Endogenous growth theory maintains that economic growth is primarily the result of internal forces, rather than external ones. It argues that improvements in productivity can be tied directly to faster innovation and more investments in human capital from governments and private sector institutions.

The Solow Growth Model is an exogenous model of economic growth that analyzes changes in the level of output in an economy over time as a result of changes in the population.