4) Suppose worker productivity increased at the rate of 1.9% per year. If the la

Question

4) Suppose worker productivity increased at the rate of 1.9% per year. If the labor force grew by 1.5% per year, what rate of increase in RGDP would be sustainable without increasing inflation pressures?

5) In the period 2000-2003, the RGDP (real GDP adjusted for inflation) growth rate in the US averaged 2.39% per year, while inflation rates remained at around 2.53% per year. In the latter half of the 1970's, by contrast, inflation rates accelerated markedly even though annual growth in RGDP did not exceed 3%.

Now in 2012-2013, the US economy is slowly recovering from the great recession, what will determine whether it can recover in the coming years a strong growth performance similar to 2003-2006 without triggering a noticeable acceleration of inflation?

6) Illustrate how each of the following events would shift the AS schedule and potential RGDP, thereby altering equilibrium prices and output levels in the economy. Use an aggregate supply-aggregate demand diagram in your explanation and assume that the economy is initially at full employment. Note: Although some of the events listed below will also shift AD conditions in the economy, you do not need to show AD shifts in answering these questions. We will discuss AD shifts in next week's lesson.

a) an increase in the general level of money wages

b) an increase in the price of imported oil and related energy products.

c) a decrease in the level of US interest rates

d) an increase in the productivity of labor

e) an increase in the expected inflation rate

f) an increase in the labor force growth rate.

Explanation / Answer

4.

Increase in labor productivity = 1.9% per year

Growth in labor force = 1.5% per year

Increase in sustainable RGDP = Increase in labor productivity + Growth in labor force

Increase in sustainable RGDP =1.9% + 1.5% = 3.4%

Growth rate in real output should not exceed the growth in output producing capacity to achieve sustainability.

Pl repost other unanswered questions to get their proper answers.

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