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Cards In This Set
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Production function
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Y = F(K, L)
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Production function: assumptions
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- technology is fixed- labour and capital are fixed at a certain level- GDP is the Y when labour and capital are fixed
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National income: aspects
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W = nominal wageR = nominal rental wageP = price of output
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Formula; real wage
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W/P - nominal wage/price of output
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Formula; real rental wage
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R/P- nominal rental wage/price of output
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MPL = marginal product of labour =
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- extra output a firm can produce usine an additional unit of labour (ceteris paribus)- slope- diminishing marginal returns
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In the case of MPL there can be stated that labour is hired up to the points where ...
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MPL = W/P = real wage
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Since labour and capital are supplied up to the point where ..., it is defined that the line of this supply is ...
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MPL = real wage = W/PMPK = real rental wage = R/Pvertical
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The neoclassical theory of distribution suggests that ...
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Each factor input is paid its marginal product
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National income; formula
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Y (bar) = labour income + capital income = MPL x L (bar) + MPK x K (bar) = W/P x L (bar) + R/P x K (bar)
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In a closed economy; the supply side involves ...1... and ...2..., the demand side involves ...3... and the equilibrium involves ...4... and ...5...
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1. factor markets2. determination of the output and income3. determinants of C, G and I4. a state of eq. in the good market5. in the loanable funds market
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Aggregate demand; formula; closed economy
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= C(Y-T) + I(r) + G - Y, T and G --- (bar)
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Aggregate supply; formula; closed economy
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= Y (bar) = F(K, L) - K and L --- (bar)
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MPC: marginal product of disposable income
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C(Y-T) = disposable incomeMPC = slope = disposable income if C changes by 1
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The rate (r) that determines the level of investments has the following 'names':
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- real interest rate- cost of borrowing- oppurtunity cost of using one's own funds to finance investment spending
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