Growth_lect3_handout - A simple model of GDP determination...

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A simple model of GDP determination UIUC Econ303 Zhao Growth A Simple Model of GDP Determination Specification of an economy Technology: Y=F(K,L) F(K,L)=10K 0.3 L 0.7 Many identical firms demands labor and capital Representative firm Aggregate demand are K d and L d Firms behave competitively in both labor and capital markets The action of a single firm does not affect prices Take wage rate and rental rate of capital as given The supply of labor and capital is fixed K s =1 L s =1 L w Demand for labor Supply of labor Equilibrium wage Equilibrium labor How to compute an equilibrium
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A simple model of GDP determination UIUC Econ303 Zhao An example Example continued What could lead to a higher wage? L w L w Higher labor productivity Labor scarcity Force of demand and supply ln(college/highschool) Goldin and Katz NBER 12984
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