FACTORS CAUSING LABOR PRODUCTIVITY TO GROW:

1. Increases in Physical Capital

2. Increases in Human Capital

3. Technological Progress

 

 

 

AGGREGATE PRODUCTION FUNCTION

On per worker basis:

Y/L = f(K/L, H/L, T)

Where:

Y = Output

L = Labor

K = Physical Capital

H = Human Capital

T = Technology

Y/L = Labor Productivity

Gross Investment (I)

- Depreciation
____________________

Net Investment

If Net Investment is positive, the Capital Stock will increase over time.

If Net Investment is equal to zero, the Capital Stock will remain constant over time.

If Net Investment is negative, the Capital Stock will decrease over time.