Question

Alyssa states: “when capital per hour worked increases in the United States the Natural Unemployment rate increases but economic growth increases at an increasing rate.” Do you agree or disagree? Carefully Explain your answer.

Answer 1

The statement is true. When capital per hour increases in the United States, the amount of labor employed will decrease because capital is substituted for labor in production. This might lead to decrease in demand for labor and as demand for labor decreases, the unemployment in the economy will increase. However, increase in capital per hour leads to technological development in the country and also improves productivity in the economy leading to economic growth at an increasing rate because both total product and marginal product increases which leads to increase in overall level of output produced in the economy. Thus, it can be stated that when capital per hour worked increases in the United States, the natural unemployment rate increases but economic growth increases at an increasing rate.