macro chapter 07.pptVIP

7.2 the production function Production function-the relationship between the level of output of a good and factors of production that are inputs to production Y=F(K,L) FIGURE 7.1(P141) With the stock of capital fixed at the constant level k, only variations in the amount of labor can change the level of output in the economy. Principle of diminishing returns Suppose we produce out with two or more inputs and we increase one input while holding the other inputs fixed. Beyond some point-called the point of diminishing returns-output will increase at a decreasing rate. What happens if the stock of capital increase?(P142,figure 7.2) 7.3 wages and demand and supply for labor What determined the amount of employment in an economy? (figure 7.3 P143) Real wage-the wage rate paid to employees adjusted for changes in the price level Labor market equilibrium The demand and supply curves determine the level of employment in the economy and the level of read wages. The quantity demanded for labor equals the quantity supplied. Changes in demand and supply Marginal principle-increase the level of an activity as long as its marginal benefit from hiring a worker to the marginal cost. What affect the demand of labor?(P144,figrue 7.4) What affect the supply of labor? 7.4 labor market equilibrium and full employment Full employment output-the level of output that results when the labor market is in equilibrium and the economy is producing at full employment. P146 figure 7.5 Potential output depends on both capital and labor. 7.5 using the full-employment model Have the high tax rates hurt the economy and reduced the level of output and production? Why the output is fluctuations? Taxes and potential output P148 figure 7.6 Real business cycle theory Real business cycle theory-the economic theory that emphasizes how stocks to technology can cause fluctuations in economic activity Changes in technology will usually change the level of full employment or potential output P150 figure 7.