a)Given the production function Y= AF (L, K, H, N), explain the determinants of productivity

Given the production function Y=AF(L,K,H,N).

Where A is the technological knowledge and output is a function of the inputs L,K,H,N

The determinants of productivity can be seen as the input factors used in this equation, that is, L which stands for labor, which is the number of workers that are employed in the process of production. K which denotes the physical capital, that is, the stock of equipment and structures that are used to produce goods and services. H denoted the human capital which is the measure of the knowledge and skills that the workforce acquires through training, education and experience. N denotes the natural resources which depict that input of production that is provided by the nature.

It is typically assumed that this production function exhibits constant returns to scale which means that when all the inputs are increased in the same proportion then the total output also increases by the same proportion. However contrary to this the production function is also subject to diminishing marginal productivity in its inputs. This depicts that when a single input is increased keeping all the other factors constant then the output increases but at a diminishing rate.

b)

Population growth has various effects on productivity-

The population growth rate can be seen as having a double effect, this states that higher population growth rate would lower the steady state level of per capita income but at the same time, the total income must grow faster, This is because in order for the economy to converge to steady state level of per capita income, the long run growth of per capita income must equal the rate of growth of population.

It has the following 2 effects-

1. Level effect-

The level effect arises since labor is a consumer of final goods. As a result it tends to lower the per capita output because the existing capital stock must be spread more thinly over large population.

 (long run equilibrium)

Where k* is the steady state capital per worker, y* is the output per worker, s is the savings rate, n is the population growth rate and d is the depreciation rate.

According to this equation as n increases, it lowers the (s/n+d), as a result the per capita output also falls.

2. Growth effect-

Growth effect arises since labor is an input in production and with a rise in the population growth rate, the total output also tends to rise.

Therefore, there is growth effect only in the total output.