From the readings/graph on neoclassical growth, it seems to say that technology leads to higher interest rates which leads to hire savings rates which leads to more production at a diminishing rate, so interest rates start to fall again as technology growth eases off is this about it?
a little addition in between… Assumption : Real Interest rate is the line tangent to the curve. Technology shifts the curve up. So the along the verical line of capital / hr of labor on the new curve is the productivity (now draw a line tangent ) - real int rate is more steeper… Higher real interest, motivates people to save more and the capital increases (that wil be increased productivity but @ diminishing rate) - along the new curve. (now draw another tangent line). Real interest rate is parallel to the target IR before tech boom. Interest rate falls due to the diminishing return… Tech adv eases due to less incentive for saving or captial accumulation.
so, on the way up, interest rates follow technology, but on the way down technology follows interest rates?
no that is not right. on the way down - technology is already set at an improved level, but due to that productivity is more. So more saving happens… Now remember the 1/3 rule. If Capital/hr of labor increses by $1, productivity increases by 1/3 of $1. this is the reason for diminishing increase in productivity. But it ripples into technolgy, meaning…since no one has incentive to save/ technological improvement tanks, however its at an improved state than ever before