Question

                                                               Table 1

Item                                                                                                             1998                     1999

Aggregate Hours Worked (billions)                                                        25.0                      25.2

Real GDP (billions of 1992 dollars)                                                          840                       880

a) Calculate the growth rate of real GDP in 1999.

b) Calculate labor productivity in 1998.

c) Calculate labor productivity in 1999.

d) Calculate the growth rate of labor productivity in 1999.

(Hint: Labor productivity is real GDP per hour of labor; that is, it is real GDP divided by aggregate hours worked).

Answer 1

a. Growth rate of real GDP can be calculated as:

[(Real GDP in 1999 - Real GDP in 1998) ÷ Real GDP in 1998] × 100

Or,[( 880-840)÷840] × 100 = (40÷840)×100 = 4.76%.

Thus, the growth rate of real GDP is 4.76%.

b. Labor productivity in 1998 = Real GDP in 1998 ÷ Aggregate hours worked in 1998

Or, 840÷25 = $33.6 per hour of work

c. Labor productivity in 1999 = Real GDP in 1999 ÷ Aggregate hours worked in 1999

Or, 880 ÷ 25.2 =$ 34.92 per hour of work

d. Growth rate of labor productivity in 1999:

[Labor productivity in 1999 - Labor productivity in 1998) ÷ Labor productivity in 1998 ]×100

Or,[( 34.92 - 33.6 )÷33.6] × 100

Or, 3.928%

Thus, the growth rate of labor productivity is 3.928%.