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    Modeling the Effects of Improvements in Technology

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    Ceteris Paribus means "other things the same" or "all other things being equal". In the Keynesian, Classical, and Solow model, what is the impact of an increase in production technology (i.e. an increase in the ability to produce output with the same amount of input) ceteris paribus?

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    The Solow or neo-classical model ignores the temporary ups and downs of the business cycle and considers only the long-run. In the very long-run capital accumulation appears to be less significant than technological innovation in the Solow model. A common prediction of these models is that an economy will always converge towards a steady state rate of growth, which depends only on the rate of technological progress and the rate of labor force growth. This model assumes that countries use their resources efficiently and that there are diminishing returns to capital and labor increases. From these two premises, the neo-classical model makes three important predictions. First, increasing capital relative to labor creates economic growth, since people can be more productive given more ...

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    Effects of improvements in technology in the Solow, Classical, and Keynesian models.