Question

if a neoclassical model shows increasing wages growing faster than productivity in the economy over the long run, what else will likely occur?

Answer 1

If a neoclassical model shows increasing wages growing faster than productivity in the economy over the long run, They likely occur inflationary increase in price level.

Robert Solow and Trevor Swan first published their neoclassical growth theory in 1956. This theory states that economic growth is the result of three factors: labor, capital, and technology. The economy's resources are limited in terms of capital and labor, but the contribution of technology to growth is limitless.

The neoclassical theory states that a firm's level of investment should depend solely on its perceived investment opportunity, as measured by the firm's marginal Tobin q, which is the value of the investment opportunity divided by the required investment cost. is suggested.

For example, you may want to buy designer clothes based on the brand label attached. Also, the cost of manufacturing clothes may be insignificant. Here, the perceived value of the brand label outweighs the input cost, creating 'economic value'.

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