A Note on the Full Employment Budget Surplus
considerable influence on estimated values of capital's average and marginal products, they do not greatly affect the estimated parameters of a production function. That is, estimated variations over time of the capital-output ratio are far more reliable than the estimated ratio for a given year if capital is measured by the perpetual inventory method. Since it is capital used rather than installed that is relevant in analysing production relations, some adjustment should be made for changes in the utilisation of capital. One possibility considered (Kr) was to adjust capital estimates (K) for changes in hours worked due to variations in holidays, overtime, short time, and the statutory working week. This allows for one form of excess capacity, the short running of machines, but not for the other, machines left completely idle. As an alternative (Ku), capital available was adjusted by the ratio of deflated electricity expenditure to horsepower installed. These estimates are shown in Table 2. The correlation between the three measures of capital shown in Table 2 is very high; between K and Ku, for example, it is 0.985. This suggests that in circumstances of overemployment (as there have been in New Zealand during the past decade) changes in excess capacity may be unimportant. The suggestion, however, is only tentative because the data on electricity consumption involve some inaccuracy in price deflation and do not allow for electricity used for heat and light.
- DOI
- 10.2307/1924084
- Volume
- 46 (1)
- Pages
- 105
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