Question

Explain how a decrease in productivity growth is likely to affect a country’s macroeconomic performance (detailed answer please)

Answer 1

The productivity growth is the ratio which is measured as economic outputs to inputs. The country's productivity growth rate and macroeconomic performance are linked closely to because growth in an economy occurs when productivity increases to allow for such growth. The higher unit costs might be passed onto consumers in the higher prices, resulting to low demand, less output and an increase in unemployment. To boost the productivity the government increased the spending or reduce taxes. An increased borrowing programme indicates that public debt will increase and cause a larger fiscal deficit due to the higher interest payments. A fall in productivity growth and high unit costs will impact the competitiveness of the country in global markets thus may cause a decline in the exports which eventually leads to trade deficit. It reduces the living standards; and creates hurdles in achieving overall growth and prosperity of macroeconomic performance of an economy