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1BB3 Notes Chapter 7.docx

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Bridget O' Shaughnessy

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Lecture # Chapter 7 Macroeconomics 1BB3 Date: 03/10/2012 Economic Growth Productivity – The quantity of goods and services that a worker can produce in each hour of work Determinants of Productivity: • Physical Capital • Human Capital (How much time people spend to read books, unlike technological knowledge which describes the books in the library) • Natural resources (Renewable and non-renewable) • Technological Knowledge (Knowledge of how to combine input to product output, like the books in the library) Production Function • Production function shows how we combine inputs to produce output. o Y =Ax F (K, L, H, N) o Y is output o Ais technology, which is separate for the equation. o K is physical capital o L is labour o H is human capital o N is natural resources • If a production function exhibits Constant Return to Scale, then doubling all inputs leads to doubling of output. • There is also increasing return to scale and decreasing return to scale. o xY =Ax F (xK, xL, xH, xN) • Y/L = Output Per Worker • K/L= Capital Per Worker Diminishing Marginal Product • Product: Output • Marginal Product: The extra output produced by increasing any input by 1 unit. • Diminishing marginal product states that the m
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