ch30 - Chapter 30 The Economy at Full Employment Real GDP...

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Unformatted text preview: Chapter 30 The Economy at Full Employment Real GDP and Employment The production possibilities frontier is the boundary between those combinations of goods and services that can be produced and those that cannot. One type of good or service is the quantity of leisure time we have. This is the amount of time that we are not working. The relationship between leisure time and real GDP is the production possibilities frontier in the figure below. The bowed-out PPF displays increasing opportunity cost. The production function is the relationship between real GDP and the quantity of labour employed when all other influences on production remain the same. The production function in the figure below shows how real GDP varies as the quantity of labour employed varies, other things remaining the same. Labour productivity is real GDP per hour of labour. Three factors influence labour productivity: o Physical capital o Human capital o Technology Physical capital: o The more physical capital we use, the greater is labour productivity, other things remaining the same. Human capital is the knowledge and skill that people have obtained from education and on-the-job training. o For the nation as a whole, the greater the amount of schooling its citizens complete, the greater is its real GDP, other things remaining the same. o Learning-by-doing can bring incredible increases in labour productivity. People become more productive in an activity (learn) just by repeatedly producing a particular good or service (doing). Technology: o The more and better the technology the economy has, the higher the labour productivity will be. Any influence on production that increases labour productivity shifts the production function upward. So an increase in physical capital and human capital or an advance in technology shifts the production function upward. The Labour Market and Aggregate Supply The quantity of labour demanded is the number of labour hours hired by all the firms in the economy. The demand for labour is the relationship between the quantity of labour demanded and the real wage rate when all other influences on firms hiring plans remain the same....
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This note was uploaded on 06/30/2009 for the course ECON 1020 taught by Professor Parkin during the Spring '09 term at UWO.

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ch30 - Chapter 30 The Economy at Full Employment Real GDP...

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