Marginal Efficiency of Capital (1 Viewer)

[daveos]

Gday
Would anyone be able to explain what the marginal efficiency of capital is?

Also if possible what the fisher effect is?

Im lost on this stuff
Cheers

 

[Newbie]

fisher effect is nominal i-rates = real i-rates + expected inflation rate ? unsure because im a newbie

 

[Minai]

Newbie is correct, Fisher effect is basically the adjustment of the nominal interest rate to the inflation rate..ie wen the RBA increases the rate of money growth, this results in higher inflation and higher nominal interest rates

 

[timmii]

Marginal efficiency of capital - i've never heard that phrase before, but i'd imagine it would be that as capital accumulates and all other resources remain fixed, the efficiency of capital decreases. i.e diminishing marginal returns to capital...?

for a example if you have 3 chefs in a kitchen with one oven and u add an oven - each chef can make 10 more cakes than before. If you add another oven, because the kitchen is less spacious, each chef may now only be able to make an additional 8 cakes - still more cakes than before, but the use of capital is less efficient?

*sigh* sorry, best i could come up with...

 

[Minai]

..and if timmii hasn't heard of it before, u can be assured u wont be examined on it!

 

[timmii]

Lol! omg that's so not the case! You give me waaaaaaaay too much credit!

Daveos, where did u hear the phrase? check with ur teacher maybe? (I'd be interested to know if u do find out...)

 

[sukiyaki]

fisher effect? i dun remember learning this.. what topic is it under?

 

[timmii]

sukiyaki - i hadn't heard of it either. from what i can ascertain basically that real interest rates are nominal rates adjusted for inflation?

 

[Newbie]

i saw fisher effect in this essay i was errr borrowing . thats how i learnt it