# ECN 301 Chapter Notes - Chapter 6: Growth Accounting, Australian National University, Trevor Swan

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4 Jan 2018
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## Document Summary

If inputs and productivity are constant, the production function states that output will also be constant there will be no economic growth. Suppose that a new invention allows firms to produce 10% more output for the same amount of capital and labour. In terms of the production function, eq. (6. 1), for constant capital and labour inputs, a 10% increase in productivity a raises output y by 10%. What will happen to output: diminishing marginal productivity of capital is the reason that the growth rate of (cid:272)apital, k/k, is (cid:373)ultiplied (cid:271)(cid:455) a fa(cid:272)to(cid:396) less tha(cid:374) (cid:1005) i(cid:374) the g(cid:396)o(cid:449)th accounting equation. Similarly, the elasticity of output with respect to labour an is about 0. 7 in. Canada: thus, according to eq. (6. 2), a 10% increase in the amount of labour used (cid:894) n/n = (cid:1005)(cid:1004)%(cid:895), (cid:449)ith (cid:374)o (cid:272)ha(cid:374)ge i(cid:374) (cid:272)apital o(cid:396) p(cid:396)odu(cid:272)ti(cid:448)it(cid:455), (cid:449)ill (cid:396)aise. N/n, fo(cid:396) the e(cid:272)o(cid:374)o(cid:373)(cid:455) o(cid:448)e(cid:396) a(cid:374)(cid:455) pe(cid:396)iod of ti(cid:373)e.