What sets the target rate of return in the neoclassical growth theory? Why is it sloped upwards e.g. why when more capital is invested, the required rate of return is higher? Is it because investment opportunities diminish and a higher return is required as more capital is invested?
I think I may have answered my own question. The productivity curve shows the relationship between rGDP and capital investment on a labor hour basis. The target rate of return is the return required to save or invest capital. It is upward sloping at a constant rate because regardless of the level of capital invested, there is a steady target rate of return. So as capital investment increases, the amount of rGDP required also increases at the same rate. Technology shifts the line upwards because the return on the invested capital will increase (higher rGDP/capital) as labor becomes more productive holding capital investment constant.
What are the main differences between Neoclassical, New, and CLassical growth theories?
steady state, diminishing marginal returns - in neo they exist in the other one they dont