ECO 304L Lecture 7: Lecture 7 Notes
10 May 2017
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Document Summary
Technology shocks: permanent bursts of technological progress. Aggregate product function: y t = a t f (k t , l t , h t , other t ) F: captures effects of changing quantities of factors. Supply shocks: fluctuations in total factor productivity not due to technological change. Labor productivity or average product of labor. Labor productivity = output / quantity of labor = y t / l t. Y must be graphed as a function of one variable with the ceteris paribus assumption. The production function exhibits diminishing marginal products. Factor complementarity: as the quantity of one factor increases, the marginal product of all other factors increases. Marginal product of labor curve shifts right. Increase in technology increases real gdp and marginal products of all factors. Constant returns to scale: if all factors increase by x percent, then y increases by exactly x percent. F = k a l 1-a with 0 < a < 1.
