Explain how the long-run aggregate supply curve shifts in responses to shifts in the aggregate production function or to shifts in the demand for or supply of labor.Įconomic growth means the economy’s potential output is rising.Derive the long-run aggregate supply curve from the model of the labor market and the aggregate production function.
Explain how its shape relates to the concept of diminishing marginal returns. Explain and illustrate graphically the concept of the aggregate production function.The Aggregate Production Function, the Market for Labor, and Long-Run Aggregate Supply.
In the process, I deal with issues related to the nonsphericality of the disturbances, the endogeneity of the regressors, and the nonstationarity of the series involved in the estimation.\)
I present estimates based on both classical regression analysis and time series analysis. economy is not well described by a Cobb-Douglas aggregate production function. When I modify the econometric specification to allow for biased technical change, I obtain significantly lower estimates of the elasticity of substitution. I next show, however, that restricting the analysis to Hicks-neutral technological change necessarily biases the estimates of the elasticity towards one. Consistently with his results, I estimate elasticities of substitution that are not significantly different from one. I first adopt Berndt's (1976) specification, which assumes that technological change is Hicks neutral. I present new estimates of the elasticity of substitution between capital and labor using data from the private sector of the U.S.
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