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New Growth Theory

real GDP per person grows because of the choices people make in the pursuit of profit and that growth can persist indefinitely

discoveries result from and bring


competition then destroys

the profit

The ability to innovate means

new technologies are developed and capital accumulated as in the neoclassical model. The production function shifts upward. Real GDP per person increases

The pursuit of profit means

more technological advances occur and the production function continues to shift upward. Nothing stops the upward shifts of the production function because the lure of profit is always present

The ability to innovate determines how

capital accumulation feeds into technological change and the resulting growth path for the economy. Productivity and real GDP constantly grow

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