EC140 Lecture Notes - Lecture 12: Output Gap, Potential Output, Longrun
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Changes in real output have 2 causes. Gdp/fe is measure of productivity: adding people and computers doesn"t make much sense, it is only a conceptual idea that supports theory. Divide factors of production into two categories. Labour - number of people that are in the labour force. Capital: changes with immigration or labour force participation (happens very slowly, changes occur in the long-run, increases in assets used to generate production, derived from investment - changes occur in the long-run. Changes in factor supply are important for understanding long-run growth. For now - productivity is gdp per employed factor, gdp/fe. Deterioration in technology can occur: technology improvements - often in available physical capital, harder to explain - changes in efficiency of the use of capital. Companies adjust their use of labour and physical capital. Response to increased demand - increase utilization.