Please help, if possible please put in MS word format as I can\'t read some peop

Question

Please help, if possible please put in MS word format as I can't read some peoples hand writing. Also please put in your own words/original thought. Thanks

2) In theory, differences in output across economies and over time might be the result of differences in either capital input, labor input, or productivity. The evidence points clearly to productivity as a more likely and powerful source of growth differences. Which aspects of the Solow growth model help to explain why the inputs of capital and labor contribute little to growth of output, relative to productivity?

Explanation / Answer

Diminishing marginal product undermines the effect on output of increases in either capital or labor. So long as the labor input grows, and saving is sufficient to compensate for depreciation and capital dilution, output can grow at the same rate as the labor input. Faster growth is possible in recovery from an event that has reduced the capital-labor ratio, or in reaction to an increase in the saving rate. However such growth episodes end as the capital-labor ratio approaches a steady state. A growing stock of capital has a diminishing impact on output, on the one hand, and a linearly-increasing reliance on saving from output on the other. Productivity is subject neither to diminishing marginal returns nor to depreciation & dilution, so nothing impedes the connection from productivity growth to output growth

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---