Aggregate Production Function

rule of 70:

(an approximation) # of years for a variable to double=70/annual growth rate (in %)

basic macro goals:

1. economic growth 2. full employment 3. price stability 4. income equality

how to find capital productivity:

Y/K (output/unit of capital)

how to find labor productivity:

Y/L (output/unit of labor)

relationship between capital and capital productivity:

an increase in capital leads to a decrease in capital productivity

relationship between labor and capital productivity:

as labor increases, capital productivity increases

relationship between labor and labor productivity:

as labor increases, labor productivity decreases (shown on a singular aggregate production function)

how do you know when labor is increasing on a capital graph?

if labor increases on a quantity of capital graph (K on the X axis), the aggregate production function will shift up. if labor stays constant, there will be no change in the production function

how do you increase capital stock?

investment>depreciation (must increase investment to increase stock)

what happens to wage rate as labor increases?

wage rate will decrease