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Lecture

W2 The Growth Theory Notes.docx

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Department
Economics
Course
ECON 255
Professor
Ashok Kotwal
Semester
Winter

Description
W2 The Growth Theory Notes: The Growth Theory - Y = A(K,L)  The Growth Theory states that, by increasing the Capital, K, and keeping other factors such as Labor and Technology constant, the marginal return will diminish  What happens to the equation: Y/L = A(K/L, L/L)  y = A ∙ f(k) Constant Returns to Scale  If we increase the inputs by the same constant number, the output will increase by the same amount too  The equation is y = A ∙ f(k) which means income per capita depends on technology and capital per capita  Remember the graph for a production function with decreasing returns  Net Investment - Gross investment = s ∙ A ∙ f(k) - Net investment = [s ∙ A ∙ f(k)] - ∂K  ∂K is capital depreciation - The graph is Income, Y, against Capital, K - - Increase in saving ,s, and capital, k will shift the saving function upward
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