Suppose that in some country real output in the private business sector was $300

Question

Suppose that in some country real output in the private business sector was $300 billion in one year and $309 billion in the next year. (All dollar amounts are in constant dollars, which means that they are measured in terms of the purchasing power of a single year, such as 1996.) Also assume that labor's share of income is 2/3.

If total output goes up by 3%, what is the percentage increase in total employee compensation between the two years?

How do you determine employee compensation? What is the formula/method. Thank you.

Explanation / Answer

The real output increased by (309-300)/300 = 3%. Total output increase = real output increase * inflation 1.03 = 1.03 * 1 If we assume total employee compensation is adjusted by inflation,then it has not increased.

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