Aggregate Income Econ2307
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This 2 page Class Notes was uploaded by Nikita Hendricks on Thursday September 29, 2016. The Class Notes belongs to Econ2307 at 1 MDSS-SGSLM-Langley AFB Advanced Education in General Dentistry 12 Months taught by Dr. Ssozi in Fall 2016. Since its upload, it has received 16 views. For similar materials see Macroeconomics in Economics at 1 MDSS-SGSLM-Langley AFB Advanced Education in General Dentistry 12 Months.
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Date Created: 09/29/16
Chapter 3 Aggregate Income Income Per Capita is GDP divided by the total number of population. GDP per capita includes children, elderly and people who are not employed. PPP- Purchasing Power Parity constructs cost for a representative bundle of commodities in each country and uses the relative costs for comparing income across countries. Big Mac- Alternative measure of exchange rate. Simply the ratio of prices of a big mac in two countries. Income per Worker is GDP divided by the number of people employed. Income per worker is always higher than income per capita because the denominator is always smaller. Productivity refers to the value of goods and services a worker generates for each hour of work. Human Development Index combines income per capita, life expectancy and education to measure standard living. Reasons why productivity differs: Human Capital- stock of skills to produce output Physical Capital – value of equipment structures and other non-labor inputs Technology- Economy with better technology uses its labor and capital more efficiently and achieves higher productivity. Aggregate Production Function- describes the relationship between aggregate GDP of a nation and its factors of Production. Formula Y=A*F(K,H) Y stands for GDP K is the physical Capital H is the efficiency of labor F signifies there is a relationship between physical capital and the efficiency of labor. A is an index of technology. Higher signifies the economy produces more GDP. Total efficiency of Labor- is the product of the total number of workers and average human capital. Diminishing Marginal Product- marginal contribution of a factor of production to GDP diminishes when we increase the quantity used of that factor of production. Research and Development- refers to activities directed at improving scientific knowledge generating new innovations. Efficiency of Production refers to the ability of an economy to produce the maximal amount of output from a given amount of factor of production and knowledge.
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