Question

Say that a country experienced an increase in its labor force participation rate from 35% to 45% over 8 years.

A. What would be the impact on the annual growth of GDP per capita? (6 points)

B. What might be causing this change? (2 points)

Label both parts of your answer.

Answer 1

A) annual growth of GDP Per capital increase, by increasing rate of labour force

An economy’s rate of growth productivity is closely linked to the rate growth of its GDP per capita, although not identical are two.

For example, if the population percentage who holds jobs in an economy increases, GDP per capita will increase but the productivity of worker individual may not be affected. Over the long term, the only way that GDP per capita can grow continually is if the average worker productivity rises or complementary increases in capital.

B) causing the change labour participation rate

1)The first cause of labor productivity is human capital.

2)The second cause that determines labor productivity is technological change. Technological change is a combination of invention, advances in knowledge.

3)The another cause of increasing labour participation that determines labor productivity is economies of scale