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Y F (K, N ) The state of technology is a set of blue prints defining
the range of products and the techniques available to produce
them. 20 Macroeconomics by Yao Amber LI 10.4 THINKING ABOUT GROWTH: A PRIMER
Returns to Scale and Returns to Factors
Constant returns to scale is a property of the
economy in which, if the scale of operation is
doubled—that is, if the quantities of capital and labor
are doubled—then output will also double.
2Y F ( 2 K ,2 N ) Or more generally, for any number x xY F ( xK , xN ) 21 Macroeconomics by Yao Amber LI 10.4 THINKING ABOUT GROWTH: A PRIMER
Returns to Scale and Returns to Factors
Decreasing returns to capital refers to the property
that increases in capital, given labor, lead to smaller
and smaller increases in output as the level of capital
increases.
Decreasing returns to labor refers to the property
that increases in labor, given capital, lead to smaller
and smaller increases in output as the level of labor
increases.
Even under constant returns to scale, there are
decreasing returns to each factor, keeping the other
factor constant. 22 Macroeconomics by Yao Amber LI 10.4 THINKING ABOUT GROWTH: A PRIMER
Output per Worker and Capital per Worker
Constant returns to scale implies that we can rewrite the
aggregate production function as:
Y
N F K
N , N
N F K
N ,1 The amount of output per worker, Y/N depends on the
amount of capital per worker, K/N.
As capital per worker increases, so does output per worker. 23 Macroeconomics by Yao Amber LI 10.4 THINKING ABOUT GROWTH: A PRIMER
Output per Worker and Capital per Worker
Figure 10  4 Output and Capital per
Worker Increases in capital per
worker lead to smaller
and smaller increases in
output per worker as the
level of capital per
worker increases. 24 Macroeconomics by Yao Amber LI 10.4 THINKING ABOUT GROWTH: A PRIMER
The Sources of Growth
Capital accumulation: Increases in output per
worker (Y/N) can come from increases in capital
per worker (K/N) movements along the
production function. Or Technological progress: they can come from
improvements in the state of technology t...
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This note was uploaded on 03/05/2014 for the course ECON 2123 taught by Professor Yanyu during the Fall '13 term at HKUST.
 Fall '13
 YANYU

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