Hi, I am studying neoclassical growth theory and want to clarify what an exogenous increase in technology, A, means. (Please correct me if I’m wrong):
- When A1 increases to A2, technological growth is positive where Â > 0
- This will cause the production function curve to shift up to where y = f(k, A2)
- So when the economy reaches steady state at A2, does that mean that technological growth is zero, Â = 0, again until there is another exogenous increase of A?
- What is happening in the economy as it is trying to reach to a new steady state with A2?
- Does this mean that there must always be exogenous increases of A to A3, A4, … for Â > 0, so there is annual growth in the economy (since at steady state growth of capital = 0, and ŷ = Â)?
I am not sure if I have a wrong understanding of exogenous tech change. Would really appreciate some help!