Question

 

                                               

 

      

 

Real wage rate (2009 dollars)	Labor demand (billions of hours per year)	Labor supply (billions of hours per year)
5	360	260
10	325	275
15	300	300
20	280	330

Employment (billions of hours per year)	Real GDP (trillions of 2009 dollars)
100	2
200	3
300	3.8
400	4.4

The first table above gives the labor demand and labor supply schedules for a nation. The second table gives its production function.

1.    What are the equilibrium real wage rate and the level of employment?
2.     What is potential GDP? If you cannot determine a precise amount, give the range in which potential GDP must lie
3.     List five shortcomings of GDP which result in GDP not being a accurate measure of a countries well being

Answer 1

Please give rating it will be appreciable, Thank you

(A)

Real wage rate (2009 dollars)	Labor demand (billions of hours per year)	Labor supply (billions of hours per year)
5	360	260
10	325	275
15	300	300
20	280	330

Employment (billions of hours per year)	Real GDP (trillions of 2009 dollars)
100	2
200	3
300	3.8
400	4.4

At the equilibrium labor demand equals to labor supply so at real wage rate 15 labor supply equals to labor demand is 300 billions of hour per year

(b) Potential GDP is GDP when an economy utilize its resources fully

so at 300 billions of hour per year employment real GDP is $3.8 trillion

(c) GDP is not accurate to measure for the wellness of a country because

1) GDP does not include non-market good of a country so it does not actual measure of the total production of a country

2) It does not represent the inequality in a country

3) Cost of health due to environment externalities caused by production is not included in GDP
4) Growth sustainability does not measure by GDP

5) Replaced capital in place of deprecated capita is included in GDP as a new investment