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4 - Lecture 4 Chapter 4 A Model of Production Part 1 and 2...

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1 1 CHAPTER 4 A Model of Production Lecture 4 Chapter 4: A Model of Production Part 1 and 2 Ruxandra Prodan 2 CHAPTER 4 A Model of Production 4.1 Introduction In this chapter, we learn: how to set up and solve a macroeconomic model. how a production function can help us understand differences in per capita GDP across countries. the relative importance of capital per person versus total factor productivity in accounting for these differences. the relevance of “returns to scale” and “diminishing marginal products.” how to look at economic data through the lens of a macroeconomic model. 3 4.1. Introduction A model is a mathematical representation of a hypothetical world that we use to study economic phenomena. It consists of equations and unknowns with real world interpretations. Macroeconomists document facts, build a model to understand the facts, and examine the model to see how effective it is at explaining the facts CHAPTER 4 A Model of Production
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