How does the target rate play into the Neoclassical theory? How does low interests play into the New Growth Theory?
Neoclassical --> as long as real ROR > Target ROR saving will stimulate growth until the point where accumulated capital leads to diminishing returns, reducing real ROR. New Growth --> there is no target ROR, as long as tech advance, growth increase. when real ROR decrease, it an incentive for ppl to look for new profitable tech., and thus its a never ending cycle.
I did a question on the schweser bank saying that low interest rates were needed in the New Growth theory.
low IR is the incentive, so theoritically yes u do need it.