The model assumes that exogenous economic growth is continuous over time. In other words, the capital stock of the country accumulates over time as the population continues to save. This is because labor input also increases correspondingly with the technological progress. As the government and the population’s income increases as a result of their increased output resulting from increased use of technology, their savings also increases as they set a faction of the income for savings. That is, the gross domestic product increases as a result of an increase in per capita income as the country experiences a technological progress which increases its productive efficiency.
Further, the production function has the property of homogenous of degree one. Hence, F(λK,λL)=λF(K,L) for all λ,K,L>0 (2.14) In this production function, it is assumed that the state of technology is given. By doubling both labor and capital, an economy will be able to double the output. The meaning of doubling both labor and capital is that the extra labor can use the extra capital in the production process. If it is assumed that each people in the economy supply one unit of labor per unit of time, and the economy is in full employment, then labor input equal to the population.
This helps them in effecting the social science of the massive scale production. Consequently, the price of production per unit is reduced. The utility of this philosophy is clear only demand exceeds offer. Its greatest draw back is that it 's not forever necessary that the client on every occasion purchases the cheap and simply on the market product or services. 2.
There are several advantages of PPP. One of the main advantages is in terms of the creation of VFM. Under PPP, the SPV will deliver a project at the same quality as under the conventional procurement for less money or a project with the more superior quality for the same amount of money. By optimising the risk allocation i.e. to transfer the risk to the public agency or private sector depending on which party is the best to manage the risk at the least cost, the VFM of the projects can be optimised.
In capitalist economy, the most important factor was the production and consumption of goods. The industrial revolution has allowed for new methods of production. It broadens range of the services, what significantly expanded their reach. The mass migration of people from rural to urban areas has resulted in a steady increase in the demand for new goods and services - everyone wishes to 'keep up with the Joneses ': to have their own home, car and dishwasher, as well as hottest smartphone app and ridiculous kitchen gadgets. This constant need for new accessories to improve our lives is forcing production of more and more new goods and services.
An economy with a production level higher than its natural level will lead to an inflation. The central bank and governments constantly regulate increase in price level of goods and services in order to avoid hyperinflation which would be damaging to a country’s economy. In the medium or long run, an economy with a production level above its natural level can return to equilibrium using a number of methods. In this essay, price is adjusted by wage setters from short run to medium run and central bank implements monetary contraction to lower output. Phillips Curve will be used to show the effect of inflation on unemployment and data on France will be used to illustrate my answers.
This demonstrates the confinement of productivity, and thus is well captured in the Leontief production function. The critical takeaway here is that the production function will generally be affected by two things: overall supply and technological capabilities. Note that demand does not come into account in altering the production function or overall productivity potential. The illustration in the following figure demonstrates an increase in PPF, thus affecting the production function. How can productivity be raised?
Labour force is not utilized efficiently and other factors of production plants and the land factors are wasted uselessly. This situation would decrease real GNP achieved. This condition will reduce potential GNP lower than real GNP. 2. Unemployment wastes the aggregate production factors.
Unemployment is a vital issue in developing economies. When there is a high rate of unemployment, it refers that labour resources are not being utilized efficiently and full employment must be a major goal of any government because it maximizes the production. Okun’s (1962) states that a one percent point reduction in unemployment rate would increase output up to 3 percent. Therefore, the economy must continually expand to avoid the waste of unemployment. In achieving macroeconomic goal which is full employment, the condition is must be fulfilled by using all the resources such as labor, land, capital and entrepreneurs for produce the output of goods and services.
Due to the equilibrium minimum wage rate at point B it will reduce the output produced in the agricultural sector to OX’a. Thus Harris Todaro suggests that the economy should provide shadow wage or a wage subsidy to the urban sector so that they can reach to a point L which is on the PPC curve and where the indifference curve is tangent to the PPC curve. Thus this point L is a much optimum point as it is on a higher IC curve and also when the shadow wage is implemented in the urban sector than it would increase the output in the