ECON 2000 Chapter Notes -Vestment, Marginal Product, Production Function
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27 Dec 2014
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Material standards of living have improved substantially over time for most families in most countries. Advance comes from rising incomes; allows people to consume more goods and services. Differences income come from difference in capital, labour and technology. Solow growth model: shows how saving, population growth and technological progress affect levels of an economy"s output and growth. Model shows how growth in capital stock, labour force and advances in technology affect nation"s total output of goods and services. Saving rate determines allocation of output between consumption and investment. Production function determines how much output an economy produces. Investment: expenditure on new plant and equipment; causes capital stock to rise. Depreciation: wearing out old capital; causes capital stock to fall; proportional to capital stock. Higher the capital stock, the greater the amounts of output, investment and depreciation. At k*, amount of investment must equal amount of deprecation.
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