Question

Let us assume a neoclassical economy with two factors of production: Capital and Labor. ?=??! "?

Answer 1

The neoclassical or Solow growth model is the structure used to decide the hidden wellsprings of growth for an economy. The model shows that the economy's beneficial limit and potential GDP increment for two reasons:

- accumulation of such contributions as capital, labor, and crude materials utilized underway, and

- discovery and use of new advancements that make the contributions to the creation procedure progressively gainful—that is, ready to deliver more products and ventures for a similar measure of information.

A two- factor production function with labor and capital as the inputs is expressed mathematically as

Y = AF(L,K)

where Y denotes the level of aggregate output in the economy,

L is the quantity of labor or number of workers in the economy,

K is the capital stock or the equipment and structures used to produce goods and services, and

A represents technological knowledge or total factor productivity (TFP).

TFP is a scale factor that reflects the portion of growth that is not accounted for by the capital and labor inputs.

The principle factor affecting TFP is innovative change. Like possible GDP, TFP isn't straightforwardly seen in the economy and must be evaluated.

The production function shows that yield in the economy relies upon inputs and the degree of technology. The economy's ability to deliver products develops when these data sources increment or potentially technology progresses. The more innovatively propelled an economy is, the more yield it can create from a given measure of data sources.