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Mych03a - Ch 3 Productivity Output Employment The...

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Ch 3 Productivity, Output,  Employment The Production Function  The Demand for Labor The Supply of Labor Labor Market Equilibrium  Unemployment Relating Output and Unemployment: Okun’s  Law  1
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Purposes of this chapter - to introduce the production function, as Part of the determinant of the labor market, now also The basis of long term growth later (Ch, 6) 2
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Circular Flow, once more Spending Income Production Firm s Househol d Production function Labor market 3
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First, we decide the demand and supply sides of the labor market then we get the labor market equilibrium Next vary those influences changing demand and supply to alter the equilibrium 4
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The (Aggregate) Production Function  K N Y=AF(K. N) o Productio n surface 5
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Application: The production function of the U.S. economy and U.S. productivity growth Cobb-Douglas production function works well for U.S. economy: Y = A K 0.3 N 0.7 (3.2) Data for U.S. economy—Table 3.1 6
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Aggregate production function, was first introduced by Solow, but he cautioned, that this concept cannot be rigorously justified. ‘I used it, either as a parable, or as a means to handle data. I will soon drop it when it ceases to be useful, or something better comes along.’ See issues later !
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