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.

Suppose that in this economy the fraction of total output in a sector that is paid to labor is the same as the fraction paid to labor in the United States (2/3). When output was $300 billion (in constant dollars), what would total compensation have been (in billions of constant dollars)?

Suppose that total hours worked stayed the same in these two years. What is the percentage increase in labor productivity between the two years?

Explanation / Answer

1) 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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