Define aggregate production function

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Reference no: EM13176823

Consider the Isle of Lucy, a country initially characterized by government regulations that require detailed reporting of the activities of firms to the governement. Suppose, after years of stagnation, a new government is elected, and the new government announces a dramatic reduction in the reports firms have to file on their activities.

Assuming other things equal and capital and labor are fixed in quantity and using our aggregate production function and factor market diagrams, illustrate what happens to output, the real retal rate on capital, and the real wage of labor following the reduction in government regulation. Explain your answer briefly. Make sure you label all axes and points of equilibrium.

Reference no: EM13176823

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