Capital deepening

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tau281290

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Is higher or lower α benefit more from capital deepening? I’m seeing conflicting answers for this.
 
Alpha, which is the share of capital
(1-α) is the share of gdp paid to labour
 
Got it. (I put αs in for your as to make it clearer.)
Capital deepening is the result of one (or both) of the following:
  • More capital
  • Less labor
You gain more from more capital when α is low (so 1 − α) is high.
You lose less from less labor when α is low.
 
I was also confused on this given that one of the asnwers in a Schweser mock states “Developing nations with a high α are more likely to benefit from capital deepening, which should result in an increase in productivity (at least in the short term)” which seemed to conflict with the answer to a question in a different mock. I’m guessing what they are saying is that a developing country with a low α will benefit more than a developed country by moving to a high α.
Thoughts s2000?
 
i would like to say the following:
- Cobb douglas equation characteristics are ” deminishing marginal utility and constant returns to scale”
given the diminishing marginal utility, the more the α the next level of out put will increase output almost as much as the previous one, the lower the α the next out put per capital will be lower than the previous one with the incremental output added.
so higher α assumes higher benefit from capital deepining.
 
What!? Isn’t it a lower å means more benefit from capital deepening
 
Hi tau
i know is that this model exhibits diminishing marginal productivity. A value of α close to 0 means diminishing marginal returns to capital are very significant and the extra output made possible by additional capital declines quickly as capital increases. In contrast, a value of α close to 1 means that the next unit of capital increases output almost as much as the previous unit of capital.
 
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