ECON 320 Chapter Notes - Chapter 13: Real Business-Cycle Theory, Factors Of Production
Document Summary
Average labour productivity = slope of line ab. Then increase future total factor productivity: labour input increases to n2, output increases to y2, average labour productivity increases to the slope of ad (which is > ab) Implications of real business cycle theory for government. So there are no need for government stabilization policies. Apply a policy to directly address the inefficiency. It is difficult for private sector workers and producers to coordinate their actions. One persons willingness to engage in some activity increases, with the number of people engaged in the activity. *agents cannot communicate to coordinate a particular equilibrium. Labour productivity is low when labour input is low. Labour productivity is high when labour input is high. If everyone expects high labour input ==> high productivity is realized. Fluctuations in the economy between: high labour productivity and high output, low labour productivity and low output.
