ECON 314 Lecture Notes - Lecture 20: Diminishing Returns, Autarky, Production Function

• School: McGill University
• Department: Economics
• Course: ECON 314
• Professor: Eesha Sen Choudhury

Document Summary

This is one of the most influential growth models in economics. It provides us with an understanding of important economic variables relevant for development. Diminishing returns (because alpha is always between 0 and 1) in a closed economy. Constant returns to scale (for every unit of input, there is an equal amount of output) When investment in capital is higher than the rate of depreciation, rate of savings will increase. The model attempts to explain long run economic growth by looking at capital accumulation, labour or population growth and increases in productivity (technology) In the short run, growth is determining by moving to the new steady state which is created only from the change in capital investment, labour force growth and depreciation rate. Again, change in capital investment is from the change in the. Again, change in capital investment is from the change in the savings rate.