EC390 Chapter Notes - Chapter 17: Balanced-Growth Equilibrium, Asteroid Family, Capital Accumulation
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Technological progress can manifest itself in many ways: more output, given the same amount of input, better products or even new products. Technology = a, labour = n, capital = k. The above implies two things, that technology reduces the amount of workers needed to have a certain amount of output. It also implies that technological progress increases an, the amount of effective labour in the economy. Assume constant returns to scale once again, and decreasing returns for factors. (y/an) = f (k/an), output per effective worker = the function, capital per effective worker (i/an) = sf(k/an) In order to maintain the same amount of capital per effective worker, capital must increase in proportion to the number of effective workers. Assume population and workforce grow at gn and technology at ga, the growth rate of effective labour would be ga + gn = an.