Justin Sousa 1December 15, 2016Mod 38: Productivity and GrowthAccounting for Growth: The Aggregate Production Function-Theaggregate production function shows how productivity depends on physical capitalper worker and human capital per worker as well as the state of technology (functionbelow)-GDP per Worker = T*(physical capital per worker)0.4*(human capital perworker)0.4-T is the estimate of the level of technology-An aggregate production function exhibitsdiminishing returns to physical capital when,holding the amount of human capital per worker and the state of technology fixed, eachsuccessive increase in the amount of physical capital per worker leads to a smallerincrease in productivity-Economists usegrowth accounting to estimate the contribution of each major factor inthe aggregate production function to economic growth-Total Factor Productivity is the amount of output that can be achieved with a givenamount of factor inputs-When total factor productivity increases, the economy can produce more outputwith the same quantity of physical capital, human capital, and labor
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