ECN 101 Lecture Notes - Lecture 13: Autarky, Factors Of Production, Capital Accumulation
Document Summary
Given diminishing marginal product of capital, the less developed economies are likely to experience significant increases in output from capital accumulation because of their current low capital endowment. Y = output per head, a = total factor productivity, k = quantity of capital per worker (capital-labour ratio) Replacement investment (ri) investment expenditure necessary to make good or replace the buildings or equipment worn out during the process of production investment needed to equip the growing labour force. Expenditure in excess of ri that increases the capital labour ratio. Total investment (i) = ri + ni. Change in capital-labour ratio ( k) = ni. We assume capital stock depreciates at a constant rate through time (d) and labour force increases at a constant rate over time (n) In closed economy, i = y = ri + ni. Assume national saving is y, where is saving rate.