(a) Explain how the following changes will affect the total employment, average wage rate, labor productivity, and growth rate of the GDP of an economy.

(i) An increase in the labor force participation rate

(ii) Growth in capital per worker accompanied by technological change

Which of the above changes would contribute more toward a sustained high economic growth rate of an economy in the long run?

(b) Suggest three government policies that can be used to raise the economic growth rate of an economy.

Solutions

Expert Solution

a. (i) If labor force participation rate increases it means supply of labor also increases. Total output of the economy is likely to increase due to rise in employment. GDP growth is positively related with labor force participation rate.

If rate of growth in output is greater than rate of growth in labor supply then it indicates improvement in labor productivity. If the participation of skilled workers is greater than unskilled worker in labor force, then growth of output will be higher.

Labor force participation rate in labor intensive sector will increase the wage rate as the demand for labor is greater in this sector.

ii) When growth in capital per worker is accompanied by technological progress increases production and quality of production. Thus, value of production also rises due to higher productivity growth. Consequently, average wage rate, GDP growth and total employment rise as well.

Growth in capital per worker with technological progress will lead to sustainable high growth rate of an economy in the long run, because technological changes shifts the production function and thus production capacity. Therefore, opportunity of employment, wage rate increase and GDP growth are greater than that is only due to change in labor force participation rate.

b) Three government policies are: i) investment in technological progress or R &D, ii) investment in higher education and skill formation iii) accumulation of capital stock (combination of natural, physical and human capital) by reducing pressure on natural resources. Third policy is referred to sustainable growth policy.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

1) Part A: How do we measure labor productivity? How do changes in labor productivity affect...

1) Part A: How do we measure labor productivity? How do changes in labor productivity affect the U.S. standard of living? Does an increase in labor productivity always leads to an increase in standard of living, explain? Part B: According to the life-cycle hypothesis, what is the typical pattern of saving and spending for an individual over his or her lifetime? What impact does this pattern have on the saving rate in the overall economy?

How would you expect the following changes to affect the prevailing wage and employment of servers...

How would you expect the following changes to affect the prevailing wage and employment of servers in restaurants? Explanation and graph for all. a. The pandemic reduces demand for restaurant meals. b. New techniques reduce the amount of time servers need to take each order. c. In order to raise more revenue, the government imposes a new payroll tax on restaurants. (That is, the government requires that restaurants pay some amount of money to the government for each worker they...

Explain the employment and wage rate for a monopsony in an unorganized labor market graphically. Explain...

Explain the employment and wage rate for a monopsony in an unorganized labor market graphically. Explain graphically how the wage rate and employment level change when a union is established in this market.

Labor Demand Data Labor Supply Data Employment Total Product Product Price Employment Wage Rate 0 0...

Labor Demand Data Labor Supply Data Employment Total Product Product Price Employment Wage Rate 0 0 $2.20 0 -- 1 15 2.00 1 $1.00 2 28 1.80 2 2.00 3 39 1.60 3 3.00 4 48 1.40 4 4.00 5 55 1.20 5 5.00 6 60 1.00 6 6.00 The table shows labor demand data on the left and labor supply data on the right. What will be the profit-maximizing selling price of the product? Multiple Choice $1.40. $1.60. $1.80....

Explain how an increase in technology, which increases the productivity of labor, will affect the labor...

Explain how an increase in technology, which increases the productivity of labor, will affect the labor market, the production function, and aggregate output. Provide graphs to illustrate.

Explain how new technologies, which increase productivity, affect the average variable cost, average total cost, and...

Explain how new technologies, which increase productivity, affect the average variable cost, average total cost, and marginal cost curves.

How do productivity, price level changes, and employment levels affect the economic stability of a country?/Contemporary...

How do productivity, price level changes, and employment levels affect the economic stability of a country?/Contemporary business 14th edition book.

Please summary the US and China labor market（growth rate of real wage and employment）since 2010. Using...

Please summary the US and China labor market（growth rate of real wage and employment）since 2010. Using demand and supply model of labor market to explain the trends.

If the share of GDP used for capital goods is 0.02, the growth rate of productivity...

If the share of GDP used for capital goods is 0.02, the growth rate of productivity is 0, the growth rate of population is 0.03, the depreciation rate is 0.07, the initial capital/output ratio is 3.67, and the elasticity of GDP with respect to capital is 0.1, then what is the growth rate of the capital/output ratio? Use 2 decimal places.

If the share of GDP used for capital goods is 0.12, the growth rate of productivity...

If the share of GDP used for capital goods is 0.12, the growth rate of productivity is 0.01, the growth rate of population is 0.03, the depreciation rate is 0.06, the initial capital/output ratio is 2.85, and the elasticity of GDP with respect to capital is 0.3, then what is the growth rate of the GDP per capita? Use three decimal places.

Subjects