Module 38

diminishing returns to physical capital

An aggregate production function exhibits diminishing returns to physical capital when, holding the amount of human capital per worker and the state of technology fixed, each successive increase in the amount of physical capital per worker leads to a smaller increase in productivity.

growth accounting

Economists use growth accounting to estimate the contribution of each major factor in the aggregate production function to economic growth.

aggregate production function

The aggregate production function is a hypothetical function that shows how productivity (output per worker) depends on the quantities of physical capital per worker and human capital per worker as well as the state of technology.

convergence hypothesis

international differences in real GDP per capita tend to narrow over time. (however, economists believe that this happens only when factors that affects growth are held equal across countries) states that low levels of real GDP per capita are associated with higher growth rates

Total factor productivity

the amount of output that can be produced with a given amount of factor inputs. (technological progress is usually the result of productivity rising)