This chapter is somewhat different from those which have gone before primarily in paying a good deal more attention to the problems inherent in choosing specific functional forms to represent the production structure. We have, of course, discussed a number of particular functions elsewhere – the linear, the quadratic, the logarithmic, and even the CES – but the list of functions whose properties are well understood is more extensive than those just mentioned and, even for those just listed, detailed comparisons have not been made to this point. Normally, we might consider the study of production after we have studied investment, on the grounds that the latter is part of aggregate demand (two components of which we have already considered in Chapters 2 and 3) while the former is a key concept in aggregate supply. This procedure is not optimal in this study primarily because we use specific functional forms for the production function in our study of investment; that is, the production function (as it is studied here) is one input into an aggregate investment function.
KeywordsProduction Function Technical Progress Specific Functional Form Aggregate Production Function Real Money Balance
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