Summary: Economic Growth - Chapter 1

Read the summary and the most important questions on Economic Growth - chapter 1

• 1 The facts to be explained

• 1.2 Differences in the rate of income growth among countries

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• What is shown on a ratio scale?

  Equal spaces on the vertical axis correspond to equal proportional differences in the variable being graphed

• 3 Physical capital

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• 3.1 The nature of capital

• Elaborate: capital is productive

  Using it raises the amount of output that a worker can produce.

• Elaborate: capital is produced

  It has been built or created. The process of producing capital is called investment.

• Elaborate: capital is rival

  Only a limited number of people can use a given piece of capital at one time.

• Elaborate: capital can earn a return

  If using a certain piece of capital will make a worker more productive, then the worker will be willing to pay to use it.

• Elaborate: capital wears out

  Depreciation. Using a piece of capital usually causes it to wear down a little.

• 3.2 Capital's role in production

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• Describe the production function

  Y = F(K,L)
  1. We assume that the production function has constant returns to scale and the function of output per worker is a function only of capital per worker y= f(k).
  2. It displays diminishing marginal product of capital. MPK = f(k+1) - f(k)

• Explain the assumption of diminishing marginal product

  If we keep adding units of a single input, then the quantity of new output that each new unit of input produces will be smaller than that added by the previous unit of the input.

• Cobb-Douglas per-worker production function

   Ak^a = y

• What is the MPK of the Cobb-Douglas production function

  MPK = aAK^(a-1)L^(1-a)