Econ 100b Lecture 3 - Econ 100b Lecture 3 Real GDP is...

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Econ 100b Lecture 3 Real GDP is determined by The amount of the factors of production and… The production function which translates the factors of production into output For the aggregate economy the factors of production are Labor (L) : the number of worker hours Capital (K): the stock of productive assets Economy with a lot of labor is likely to produce more than those with little amount of labor with same amount of capital Output is positively related to factor inputs Labor and Capital are exogenous variables The economy’s production function is Y = F(K, L) A specific production function that works well in macroeconomics is the Cobb- Douglas production function (equation is in slides) The A variable is total factor productivity Total factor productivity indicates how productive capital and labor are together Labor productivity indicates how productive labor is for given quantity of K and equals Y/L. this is what we typically hear about Why are some countries rich and others poor? The production function helps explain differences in national income Take the production function and divide the entire thing through with the number of workers we have… this shows output per worker As shown in the graph, one reason that poor countries are poor is because they
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This note was uploaded on 10/04/2011 for the course ECON 100B taught by Professor Wood during the Spring '08 term at University of California, Berkeley.

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Econ 100b Lecture 3 - Econ 100b Lecture 3 Real GDP is...

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