Question

Suppose an economy's real GDP is $5,000 billion. There are 125 million workers, each working an...

Suppose an economy's real GDP is $5,000 billion. There are 125 million workers, each working an average of 2,000 hours per year.

a. What is labor productivity per hour in this economy? Show your work.

b. Suppose worker productivity rises by 5% over the following year and the labor force grows by 1%. What is the projected value of real GDP? Show your work.

c. Based on your previous answer, what is this economy's rate of growth? Show your work.

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Answer #1

The real GDP is $5,000 billion. There are 125 million workers with 2,000 hours per year for each worker.

a. Labor productivity per hour = Total output / Total labor hours = 5000 x 1000 million / 2000 x 125 million = $20 per hour.

b. Now productivity rises by 5%. Labor force grows by 1%. New productivity = 20 + 20*5% = 21. New labor force = 125 + 125*1% = 126.25 million. Real GDP = labor productivity x total labor hours = 21 x 126.25 million x 2000 = 5302.5 billion

c. Economy's rate of growth = (5302.5 - 5000)*100/5000 = 6.05%.

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