Production function and growth, Macroeconomics

Assignment Help:

Q. Production function and Growth?

From the simple production function Y = f(L, K), we can classify three sources of growth: 

  • An increase in L.
  • An increase in K.
  • A change in the function f

The first two signify growth of the factors of production. L may increase if population grows, if we have more individuals in workforce or if unemployment falls. K increases if investment are large as they are if total savings is large. 

Function f need not be the same function over time. It is possible that Y increases albeit L and K are fixed. When f changes so that same amount of the factors of production will produce more output we say that we have technological progress or productivity growth. With technological progress MPL and MPK will characteristically increase for given values of L and K, which is, productivity of the factors increase. 

Education and growth in human capital are significant aspects of growth in GDP. Human capital is treated in numerous ways in the literature: 

  • You can think of human capital as being included in K - with this view education is a type of investment.
  • You can add another variable in production function: Y = f(L, K, H) where H is the amount of human capital and K is the amount of physical capital.
  • The amount of human capital may affect the function f. The more human capital, the more can be produced from same amount of L and K. With this view, increasing the amount of human capital will result in productivity growth.

Growth Accounting is the activity in which we try to figure out how much of growth in GDP is because of growth in L, growth in K and growth in productivity.


Related Discussions:- Production function and growth

Interest rates and inflation, Q. Interest rates and inflation? Assume y...

Q. Interest rates and inflation? Assume you have 1 million on 1st January 2008. A basket of services and goods similar to the CPI basket costs 100,000. You can then purchase ex

What is quantitative easing, What is Quantitative easing Quantitative ...

What is Quantitative easing Quantitative easing (QE) is an unorthodox monetary policy which since 2009 has been intermittently pursued by Bank of England and US Federal Reserv

Percentage must this cost be reduced, Cd players are produced on an automat...

Cd players are produced on an automated assembly line process. The standard cost of CD players is 150.00 per unit. The sales price is $300.00 per unit. To achieve a 10 percent mult

What is the total cost of producing output, What is the total cost of produ...

What is the total cost of producing output? The total cost of producing a specified quantity of output is the total of the fixed cost along with the variable cost of producing

Impact of an aging population on state, Evaluate the impact of an aging pop...

Evaluate the impact of an aging population on state and local government expenditures. Suggest strategies that government should take in dealing with this situation. Justify your r

Profits are expected to grow indefinitely, A firm's current profits are $1,...

A firm's current profits are $1,300,000. These profits are expected to grow indefinitely at a constant annual rate of 3 percent. If the firm's opportunity cost of funds is 6 percen

Nj bureau of employment, The NJ Bureau of Employment gathered the following...

The NJ Bureau of Employment gathered the following sample information on the number of hours unemployed workers spent looking for work last week. Hours Spent Searching Number of Un

Budget balanced, Given a four sector economy how do you find the budget bal...

Given a four sector economy how do you find the budget balanced

Business cycle, Analyse the effect of contraction phase to the vunerable

Analyse the effect of contraction phase to the vunerable

New screening methods adopted price do you exect prevail, You are the manag...

You are the manager of an organization in America that distributes blood to hospitals in all 50 states and the District of Columbia. A recent report indicates that nearly 50 Americ

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd