Summarize 2 chapters - Essay Example

Chapter 10: Aggregate Supply, the Production Function, and the Neo ical Growth Outline Production Function Factors of ProductionThe Cobb-Douglas FunctionNeoclassical economist Growth ModelInvestment and Saving Functions The economic success and prosperity of a community or nation is dependent on its production capacity; which is the measure of the labor output expressed in per capita. The quality and the living standard are measured by the productivity of the economy. A small difference in the production capacity is reflected in the quality of life.

To produce the output, factors of production such as labor, technology, and capital must be made available. It is the right combination of factors of production that results into a given level of output. The production function often assumes Cobb-Douglas function that is founded on the diminishing marginal return on each additional unit of input (Michael, 2004). The production capacity of a country or community is determined by the marginal propensity to consume out of the disposable income. However, the degree of economic growth and development is also influenced by other variables including fiscal and monetary policies, capital stock, and technological progress.

The productive capacity is also affected by other economic and environmental factor and existence of adequate resource capacity. According to the Neoclassical economist (in their growth model), economic growth rate will significantly decline with the maturity of the economy as investment resources are mainly used in replacing the depleted sectors of the economy. As more resources/capital stock is injected into the economy and with a significant growth in technology, the economy would expand irrespective of the investment and savings multipliers (Michael, 2004).

The production capacity of an economy is also boosted by the marginal propensity to save and invest. In summary, this chapter focuses on the productivity of the economy and the possible factors or theories behind it. ReferenceMichael, K. Evans, (2004). Macroeconomics for Managers. Blackwell Publishing Ltd.