Answer to Question #58442 in Macroeconomics for Justyna

Question

Consider a closed economy with no government. The production function is given by

Answer 1

A production function relates physical output of a production process to physical inputs or factors of production. A basic production function, y=f(K,L), in this case is also the Cobb-Douglas function. In a closed economy output Y is equivalent to income Y, Y = A*K^a*L^(1-a). Aggregate production functions can create a framework to distinguish how much of economic growth to attribute to changes in factor allocation.