Growth - Macroeconomics Production and Growth Main Point: A...

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Macroeconomics Production and Growth Main Point: A country’s standard of living depends on its ability to produce goods and services Q: What explains these diverse experiences? Q: How can rich countries maintain their high standard of living? Q: What policies should poor countries pursue to promote more rapid growth? Output for worker is productivity Y=AF(LKHN) Constant returns to scale (CRS) Double inputs= double outputs xY=AF(xLxKxHxN) x=1/L Y/L=AF(1,K/L,H/L,N/L) Economic Growth and Public Policy Standard of living depends on productivity, which depends on k/l, h/l, n/l, A. What can government do to raise productivity? Savings and Investment: Capital must be produced meaning we must invest in capital today to use it tomorrow. This means consuming less goods and services today. The government could encourage saving. Diminishing returns and catch up effect: Property whereby the benefit from an extra unit of an input declines as the quantity of the input increases Catch-Up effect: property whereby countries that start off poor tend to grow more rapidly
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Growth - Macroeconomics Production and Growth Main Point: A...

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