ECON 1110 Lecture Notes - Lecture 14: Shortage, Potential Output
13 Mar 2016
School
Department
Course
Professor
Document Summary
An increase in productivity is called productivity growth. The economy"s level of productivity grows only gradually from year to year but increases substantially over periods of many years. Canadian data: 1950-2015: 155% productivity growth. Productivity growth is very important for explaining long run changes in output and standards of living. Fe = f: fe / f = 1: the economy"s factors are fully employed. Fe < f: fe/f < 1: there is excess supply in factor markets, shifts as curve to the right. Fe > f: fe/f > 1: there is excess demand in factor markets, shifts as curve to the left. Changes in factor utilization rates are important for explaining short run changes in gdp. After prices have adjusted, the factor utilization rates return to its normal level. Let: f = l (labour force) and fe = e (employment level) Gdp = labour force x employment rate x output per worker.
