ECO 1102 Lecture Notes - Lecture 9: Diminishing Returns, Human Capital

• School: University of Ottawa
• Department: Economics
• Course: ECO 1102
• Professor: David Gray

Document Summary

Public policy = what can the government do about it? (government intervention) e. g, saving and investment. > forgoing present consumption through saving in order to produce more capital goods through investment spending, which augments the capital stock. > countries that allocated the most of their gdp to investment spending tended to grow the fastest between 1960-1991. Law of dr =if one factor of production (e. g, number of workers) is increased while other factors/inputs (e. g, machines and workspace) are held constant, a point is reach which additions of the input bring progressively smaller, diminishing results. Catch up effect = poorer economies tend to grow more rapidly than wealthier economies, the poorer economies will literally catch-up to the wealthy economies. > gradually reach similar high levels of per capita income. > underdeveloped countries grow faster, but will eventually face diminishing returns free trade, research in development , property rights, attract fdi (foreign direct investments) More capital = more productivity = positive slope.