ECN 222 1st Edition Lecture 15Outline of Last Lecture - Y= Af(L, K, H, N)- Economic Growth and Public Policy- Productivity Function- Diminishing Returns and the Catch – up Effect- Investment From Abroad- Research and Development- Population GrowthOutline of Current Lecture- Reviewo Proper set of institutions is fundamentalo K,H- requires investment, tradeoff, current vs future consumptiono Diminishing returns – each additional unit of capital is less valuable than preceding unito Catch-up effect – poor countries tend to grow faster than rich ones- Population ( Remember Labor is what is the denominator)o Stretches natural resources, dilutes capital stockPopulation Growth- 3) Promoting tech. progresso More people = more scientists, inventors, engineerso =More frequent discoverieso =Faster tech. progress and economic growth- Over the course of human history,o Growth rates increased as the world’s population increasedo More populated regions grew faster than less populated oneso Population has a mixed way of effects while technology is its own growth concernThe Production FormulaY/L = A(F) = (K/L, H/L, N/L)These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.Are natural resources a limit to growth?- Some argue that population growth is depleting the Earths non-renewable resources, and thus will limit growth in living standards- Technological progress helps avoid limits:o New sources of energy (wind, solar, fracking)o More efficient use (hybrids, new bulbs, insulation)- As a resource becomes scarcer, its market price riseso Increases incentive to conserve and innovateo A lot of options for energy resources.Conclusion- In the long run, living standards are determined by productivity.- Policies that affect the determinants of productivity will therefore affect the next generations living standards- One of these determinants is saving and investmentSavings, Investment, and the Financial System- Ch.13 In this chapter we will covero Types of financial institutions in the US economyo Three kinds of savingso The difference between saving and investment?o The financial systems role in coordinating saving and investmentFinancial- Savers- Borrowers- Financial Intermediaries- Financial Markets- Stocks and bondsFinancial Institutions- The financial system: the group of institutions that helps match the saving of one person with the investment of another.- Financial markets: institutions through which savers can directly provide funds to borrowersExamples:- The Bond Market = A bond is a certificate of indebtedness- The Stock market = A stock is a claim to partial ownership in a firm- Financial intermediaries: institutions through which savers can indirectly provide fundsto borrowerso Bankso Mutual funds – institutions that sell shares to the public and use the proceeds to buy portfolios of stocks and bondsPersonal Finance?Spend Less than you earn.Rule of 72 : Take 72 divide by the interest rate = number of periods it takes for a deposited to double.At 10% 72/10 = around 7 years for deposit to doubleAge=22 years old save $100029 years old $200036 400043 800050 1600057 32,00064 64,000How do you put the money somewhere where you will not touch it?Account Through Taxes up Front Taxed Back LimitStandard BrokerageBank yes yes No limit401k Employee No yes