using the model that predicts the price level and RGDP, show what happens when there is...

using the model that predicts the price level and RGDP, show what happens when there is a decrease in a country's labor productivity, and then expansionary fiscal policy (temporarily) restores the original level of RGDP. Hint: There will be points 1, 2, 3 and 4.

Expert Solution

Labor productivity in a country measures by the hourly output of a country's economy. Specifically, it presents the amount of real gross domestic product (GDP) produced by an hour of labor. Growth in labor productivity depends on three main factors: saving and investment in physical capital, new technology, and human capital. here to enhance the productivity government can take some expansionary measures by spending money or by reducing tax and that will have a real impact on productivity.1. initially, the position was high productivity then2. it comes down to the low productivity and due to low incentive, 3. government expansionary policies 4. real GDP restored and labor productivity increased.

increase in labor productivity=RGDP/aggregate hours.

Rahul Sunny answered 2 years ago

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