Chapter3_LabourMarket

Chapter3_LabourMarket - 31 Aggregate Production Function...

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3-1 Aggregate Production Function & Labour Market Objectives: Explain long-run determinants of the levels of:

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3-2 Aggregate Production Function & Labour Market Objectives: Explain long-run determinants of the levels of: o Output (real GDP) o Employment of labour
3-3 In an economy with a given:

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3-4 In an economy with a given: o Population o Capital stock
3-5 Four Components of the Classical Model:

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3-6 Four Components of the Classical Model: o Aggregate Production Function o Labour Market o Goods Market o Asset Market
3-7 Assumptions:

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3-8 Assumptions: o GDP is denoted by Y o Business firms are the only producing units in the  economy
3-9 o Distinguish between: o Exogenous variables: Weather or change in consumer’s tastes, not explained by  the models o Endogenous variables: Prices and quantity of the trade is explained within the  models

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3-10 Aggregate Production Function
3-11 Aggregate Production Function o Y = A * F (N, K)

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3-12 Assumptions:
3-13 Assumptions: o Capital stock, K is given, so o Rewrite equation for production function  o Y = A * F (N, K 0 )

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3-14 o Law of Diminishing Returns applies: o See Diagram 1:  Production Function o See Diagram 2:  MPN Curve
3-15 o Law of Diminishing Returns applies: As more or a variable factor (labour) is added to a  fixed factor (capital), the marginal product of the  variable factor declines o See Diagram 1:  The Production Function o See Diagram 2:  The MPN Curve

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3-16 Diagram 1: Production Function Y N 0 Y = A*F(N, K 0 )
3-17 Diagram 2:  MPN Curve N 0 MPN MPN

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3-18 Shifts in the Aggregate Production Function
3-19

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Chapter3_LabourMarket - 31 Aggregate Production Function...

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