ECN 222 1st Edition Lecture 13Outline of Last Lecture Review- Problems with the CPI- CPI vs GDP- Comparisons across time- CPI IncreasesOutline of Current Lecture- Production and Growth- Incomes and Growth Around the World- Production and Productivity- ProductionCurrent LectureProduction and Growth YNIncomes and Growth around the WorldThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute. Long run aggregate supplyPrice Level Measures CPIOutputMeasures GDPFact ! : There are vast differences in living standards around the worldWhy Productivity is so Important- When a nation’s workers are very productive, real GDP is large and incomes arehigh - When productivity grows rapidly, so do living standards- What then determines productivity and its growth rate?Productions and Productivity- Building up two equations- Shorthand notation- Production- total amount of goods and services produced (How much we produce)- Productivity- total amount of goods and services produced per worker ( How much is produced per capita)ProductionOutput or GDP – “Y”Depends on:Y = AF(L,K,H,N)Label – “L” – is number of workersCapital – “K” – Recall : the stock of equipment and structures used to produce goods and supplies is called [ Physical] capital denoted K.Human Capital = “H” – the knowledge and skills workers acquire through education, traiing, and experienceNatural Resources – “N” – the inputs into production that nature provides, e.g. land, mineral depositsTechnological Knowledge – “A” – society’s understanding of the best ways to produce goods and supplies.- Technological progress does not only mean a faster computer, a higher definition TV, or a smaller cell phone.- It means any advance in knowledge that boosts productivity (allows society to get more output from its resources).o E.g. Henry Ford and the assembly line.- Technological knowledge refers to society’s understandings of how to produced goods and supplies.- Human capital results from the effort people put into something- Increase in Technology knowledge- More out of each input- Technology effectively “multiplies” our other inputsY= AF(L,K,H,N)- The Production function has the property constant returns to scale: changing all inputsby the same percent causes output to change by percent- Doubling all inputs causes output to double:2Y = AF(2L, 2K, 2H, N2)Constant Returns to Scale2Y = AF (2L, 2K, 2H, 2N)Multiply by ½Y = AF(L, K, H, N) ProductionY/L = A F(K/L, H/L, N/L) Productivity Output per workerSomething to think about:“How do we increase our
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