However, the key simplication is that we can classify all of these different inputs as either capital or labor: anything physical or tangible is capital and any work done by humans is labor. It would be way too complicated to account for every possible input to production, especially as we are operating at the country level. This model of production in an economy provides a simple yet effective way of modeling output. \(A\): Total Factor Productivity - a measure of the effectiveness with which the two factors of production are used. \(L\): Labor - the number of worker hours. \(K\): Capital - a monetary value of the stock or value of productive assets. These set of inputs are known as factors of production: The focus of this lecture is on production and the functions that aim to model how much output a country can produce, when given a certain set of inputs. The aggregate value of what a nation produces is known as its Gross Domestic Product, which is calculated in many different ways. Production and Cobb-Douglas Functions # Production in the Economy #Īt the core of macroeconomics is the study of how a nation’s various resources are used as inputs in the production of goods and services. Present Value, Future Value, and Interest Rates.Budget Constraints and Utility Maximization.Utility Functions and Indifference Curves.Analyzing Shifts in \(A\) and \(\alpha\).
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