AP MacroeconomicsEconomic Growth
Aggregate Production Function
The aggregate production function links an economy's total output to its inputs—physical capital, labor, human capital, and technology—at the economy-wide level.
Written Y = A·F(K, L, H), it shows how much real GDP an economy can produce from its stock of physical capital (K), labor (L), and human capital (H), scaled by total factor productivity (A) representing technology and efficiency. Growth comes from accumulating more inputs or, more durably, from raising A through innovation and better institutions. Because of diminishing returns to capital, long-run growth in output per worker ultimately depends on productivity (A) growth—the basis of growth accounting. It is the macro analog of the firm-level production function.
Formula / Example
Y = A · F(K, L, H)