ECON-2120 Study Guide - Midterm Guide: Binge-Watching, Lawn Mower, Nutella
13 Mar 2019
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Exam 2 study guide/practice questions: provide an example of how an increase in physical capital or human capital increases the productivity of labor. Using a graph to illustrate how an increase in physical or human capital affects a production function (y = f(l)) would be beneficial. Using a lawnmower to cut the lawn would increase the productivity of labor, relative to simply picking the pieces of grass out by hand. There are many ways to answer this question. When the capital stock (k) and output (y) levels are growing from one year to the next, it must be true that the savings/investment in new capital is greater than the depreciation of old capital. The savings/investment in new capital must be less than the depreciation of old capital. In the steady-state, savings/investment in new capital must exactly equal the depreciation of old capital. A concise way of stating this condition is to state that net investment equals 0.
