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03+Aggregate+Production+and+Productivity

Economic output 3 the marginal product of labor and a

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Unformatted text preview: ens to: 1. The production function, C 2. Economic output, 3. The marginal product of labor, and A 4. The real wage? L 3-25 3-26 if wage was at pt B, then there would be an excess supply of workers, since there would be less demand The Production Function: Output & Labor The Production Function: Output & Labor • w, MPL Y Y0 Factors that shift the labor demand, LD, curve: 1. Changes in the capital stock, ΔK. Y = A0F(K0, L) • Increases in K raise the MPL and shift the labor demand curve to the right. 2. Supply (or technology) shocks, ΔA. • w0 L L MPL L Beneficial supply shocks raise the MPL and shift the labor demand curve to the right. L 3-27 3-28 downward rotation of production function demand for labor declines, so the real wage decreases as well 7 The Production Function: Output & Labor The Production Function: Output & Labor • • Factors that shift the labor supply, LS, curve: 1. Changes in wealth. • 3. Changes in the working–age population. Increases in wealth reduce labor supply and shift the labor supply curve to the left. • 2. Changes in expected future real wage. • Factors that shift the labor supply curve: Increases in the working-age population increase labor supply and shift the labor supply curve to the right. 4. Changes in the labor force participation rate. Increases in expected future real wage are like increases in wealth that reduce labor supply and shift the labor supply curve to the left. • Increases in the labor force participation rate also increase labor supply and shift the labor supply curve to the right. 3-29 supply is verticle, set value. the supply of labor is not dependent upon the changes in the current wage rate. but there are other factors that can increase the size of the labor force wealth has an effect because if you're rich you won't work as much. also you might work less now because you plan to work more later. Full-Employment Output 3-30 demographic factors. Full-Employment Output Y • Full-employment, or potential, output is the level of output whe...
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