ECON 105 Lecture Notes - Lecture 7: Production Function, Human Capital, Productive Efficiency

• School: Simon Fraser University
• Department: Economics
• Course: ECON 105
• Professor: Brian Krauth

Document Summary

Let x t = value of x at time t. Suppose we have some variable x measured at different points in time. Example: x t is called a time series. The growth rate of x t between two adjacent points in time is: Suppose that x t at rate g forever. X t+1 = (1 + g) x t x t+2 = (1 + g) x t+1 = (1 + g)2 x t x t +3 = (1 +g)2 x t+2 = (1+g)3 x t. So: x t + k = (1 + g)k x t. Now suppose x t grows @ 10% per year. Then x t+1 = 1. 1 x t x t+2 = (1. 1)2 x t. Result: small differences in growth rates can have big consequences over long period. We can approximate our regular growth rate formula. We will not often use the log approximation directly. Instead we will use it in form of 3 simple rules: