Aggregate Production Function

Macro

Specific example: Cobb-Douglas Production Function

$Y=K^{\alpha }{L}^{1-\alpha }$

Generally, it has combination of: $Y=F(A,K,L,N,H\dots )$

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Growth in output $Y$ must come from growth in the inputs.

Some notations:

• $Y$: output

Proximate Causes:

• $A$: technology - technology progress
• $K$: capital - capital accumulation
• $L$: labor - population growth
• $N$: natural resources -discovery
• $H$: human capital - education

Those factors would lead to economic growth in $Y$.

Fundamental Causes

• Institutions eg. property rights
• Geography eg. international trade
• Culture: eg. saving/eduction
• Luck eg. natural resources