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26 February 2013 Econ 202

O mp x 0 key characteristic of the production

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o MP x  > 0 Key characteristic of the production function o Diminishing returns Each additional increase in capital yields more GDP, but at  lesser and lesser rates The marginal product is going down as you get more All the important implications of traditional growth stem from this theoretical  idea o Two implications Steady state: no change in capital going forward from this point At this stage, we repair capital to keep things going as  they currently are; taking you back to the level you used  to be No net investment Net investment = investment – depreciation No growth Diminishing returns   no growth Convergence All nations are going to gravitate towards the same  income level Rich countries will slow down and poor countries  will grow faster and faster until they catch up Greater returns to investment in poor countries Steady state   convergence Technology o Source of new growth o Technological advancement: new techniques or methods that enable 
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