In terms of the production function Y = A₀ x F(L,K₀) where A is the state of technology, L the level of employment and K the stock of capital:

Question

Quizplus · Accepted Answer

The production function Y = A * F(L, K) shows how output Y is determined by the state of technology (A), the level of employment (L), and the stock of capital (K). In the short run, changes in output (AS) can indeed come from changes in the level of employment (L), as capital stock and technology are often considered fixed in the short term. Potential output (Y_P) is the level of output when the economy is at full employment (L_F), indicating that all available labor resources are being used efficiently. Changes in the stock of capital or the state of technology can shift the potential output level by affecting the production capacity of the economy. Therefore, all the statements A, B, and C are correct, making D the correct choice.

In Terms of the Production Function Y = A0 X

In Terms of the Production Function Y = A₀ X