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CAPITALCLASS - CAPITAL Interest 1 In the News Warren...

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1 CAPITAL & Interest 1 In the News? Warren Buffett, the second-wealthiest man in 2 America, wants to pay more taxes. "People at the high end -- people like myself -- should be paying a lot more in taxes. Course Issues Review Guide and Essential Questions Extra Credit Assignment 14 by Saturday, due by **Friday** 12/3 3 Final exam Weds 12/22 8am College Ave Gym
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2 What’s Capital? Roundabout production Produced goods used to produce goods= roundabout production Requires foregoing current consumption i.e. Saving Tangible and intangible capital Structures, equipment, inventories 4 Software, patents (intellectual property), brands and good will Human capital – relation Capital Markets rental cost of capital Financial Capital - claims Why Does Capital Matter? Increases MPL – productivity and GDP Diminishing Returns (Marginal Productivity) of Capital As K ↑→ Δ Y/ Δ K basis of neo-classical growth theory – steady state And returns to capital = MPk which falls 5 But technological improvements Substitutes for and Augments Labor Firms choose K and L so that MPk/Pk=MPL/PL = MPk/MPL=Pk/PL If PL ↑→ MPL ↑→ L Substitute K for L If K ↑→ MPL (and real wage increases) Luddites - automation Capital, Capitalism and Marx
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