Question

Which of the following are problems of a piece rate system?
I.    The piece rate system might attract the least productive workers.
II.   Workers might be concerned more about quantity than quality.
III. Inevitably, piece rate systems cause wages to rise more than productivity.

		I only
		II only
		I, II, and III
		III only

If real GDP per capita in the United States is currently $50,000 and grows at 2.5 percent per year, how many years will it take to reach $200,000?

		approximately 56 years
		approximately 28 years
		approximately 84 years
		approximately 112 years

If the United States is slightly to the left of its steady-state level of capital stock, an increase in capital production is expected to lead to a higher level of real GDP than the increase in the level of real GDP gained from an improvement in technology.

True

False

Answer 1

Answer:-

(1).II only

Under piece rate system, workers are paid according to units of production so workers are more concerned about the quantity than quality of a product. Increase in the units of production increases the wage so they just try to increase their quantity of production. Piece rate system attracts more productive workers who can produce more units and able to earn huge.

(2). By using Rule 72, it will take 28 years (i.e. 72/2.5= 28.8years) for real GDP per capita to reach $200,000

Note: Rule 72 states that the product of interest rate and a number of years should be equal to 72 when we want to double a value.

(3). False.

At steady state, all savings go toward the replacement of depreciated capital, leaving no extra money for net additions to capital. So, net investment equals zero and the capital stock remains constant at this point. Hence, economic growth due to increase in capital stock would become stagnant here.

But, a certain rate of technological improvement in a year requires the same rate of the capital stock to be updated annually to ensure that workers are as efficient as possible. The annual change in output equals the rate of growth in the labor force plus the rate of technological advance, which improves output per worker. So technological improvement gives an extra kick to economic growth, but it also requires a greater share of savings devoted to maintaining a capital stock which utilizes the technology.