This video discusses the concept of “productivity curves” in economics. The following is a part of the transcript. This video requires Flash 8 or above. If it does not start, click the play button to start.

Productivity curves are plots of the real GDP per labor hour versus capital per labor hour. From the productivity curves, we see that the productivity curves in a healthy economy are increasing and depend on the level of technology. They also show the diminishing returns to capitals.

According to “one third rule”, one percent increase in the capital per labor hour results in 1/3% increase in the real GDP per labor hour.

Therefore, for example, if the productivity increased by 1% from year 2005 to 2006 and it is given that the capital per labor hour increase during this period was also 1%, then only 0.33% increase in the productivity is due to the increase in the capital per labor hour while the rest of the 0.67% is due to the increase in technology level!