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PRODUCTION FUNCTION

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Standard of living ; Ability to produce goods and services Productivity; Amount of goods and services worker can produce each hour Compounding; Accumulation of growth over a period of time

FACTORS OF PRODUCTION (INPUTS USED TO PRODUCE GOODS AND SERVICES)
    Physical capital (tools and buildings) Human capital (Knowledge and skills ) Natural resources (Land, rivers and mineral deposits) Technical knowledge

PRODUCTION FUNCTION (THIS DESCRIBES THE RELATIONSHIP BETWEEN INPUT AND OUTPUT)

Y= AF (L,K,H,N)
Y- Quantity of output A- Available productioyn technology L- Quantity of labour K- Quantity of physical capital H-Quantity of human capital N- Quantity of natural resources F- this is the function that shows how the inputs are combined Y/L = A F(1, K/L, H/L, N/L) Where: Y/L = output per worker K/L = physical capital per worker H/L = human capital per worker N/L = natural resources per worker

GOVERNMENT POLICIES THAT RAISE LIVING ST ANDARDS
    Encourage saving and investment Encourage education and training Promote free trade Promote free trade

Diminishing returns = Decrease in the production as a result of increase in a factor of production while other factors are constant. Ex- Fertilisers increase the yield but excessive use of it can diminish the yield Catch up effect – Poor countries achieving a faster growth compared to richer countries

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TWO TYPES OF FOREIGN INVESTMENT

Foreign portfolio – Investments financed by foreign countries but operated by domestic residents Foreign Direct investment –Investment owned and operated by foreign country Financial system Group of institutions that match one person’s savings with another person’s investment

FOREIGN PORTFORLIO
Investment financed by foreign operated by domestic

Examples of financial institutions in Australian economy Financial markets  Bond market – Bond is a certificate that specify obligations of borrower to the holder of the bond Main terms of a bond are; 1.Term 2. Credit risk 3. Tax treatment  Stock market Financial intermediaries  Banks  Managed funds Share; Claim to partial ownership of a firm Equity financing; Sale of stocks to raise money Managed fund; Institution that sells shares to public

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