Question

Macroeconomics

1.Explain the concept of “diminishing productivity of capital.” Be sure to address the assumptions that are made for this condition to hold.

2.Utilize an aggregate production framework to discuss how education can create economy growth

3.For a high-income economy like the United States, what elements of the aggregate production function are most important in bringing about growth in GDP per capita? What about a middle-income country such as Brazil? A low-income country such as Niger?

Answer 1

1. Diminishing productivity of capital is an economic concept according to which if more and more units of capital is increased keeping other input(s) fixed, the additional units of the capital will yield less and less marginal output. For example, if more and more units of machines are added keeping the number of workers constant, each additional machine will yield less marginal output than the previous machine. Following are the assumptions of diminishing productivity of capital:

1. When the amount of capital is changing, other inputs remain unchanged.
2. There is no technological change and or change in the production technique
3. All units of capital are equally efficient