Question

Labor productivity and GDP

1. The following table shows data for a hypothetical economy in 2006 and 2007.

Use the table to answer the questions that follow.

(Hint: When calculating growth rate for population use the following formula: Population Growth Rate=Population in 2007−Population in 2006Population in 2006×100Population Growth Rate=Population in 2007−Population in 2006Population in 2006×100. You will need to use similarly structured formulas for calculating growth rate of real GDP per person and the growth rate of labor productivity).

	2006	2007
Population	400,000	408,000
Number of Hours Worked	875,000,000	875,000,000
Real GDP	$7,000,000,000	$7,068,600,000
Real GDP per Person
Labor Productivity

2. The growth rate of the population between 2006 and 2007 is1%, 2%, -2%, or -1%?

Calculate real GDP per person in 2006 and 2007 and enter the values in the previous table.

3. The growth rate of real GDP per person between 2006 and 2007 is1%, 2%, -2%, or -1%?

Calculate labor productivity in 2006 and 2007, and enter the values in the previous table. (Note: Enter your answer to the nearest penny.

Hint: Labor productivity is equal to real GDP divided by the number of hours worked, so the unit of measurement is dollars per hour.

4. Based on your calculations, the growth rate of labor productivity between 2006 and 2007 is1%, 2%, -2%, or -1%?

5. Assuming that real GDP per person is a good measure of living standards, between 2006 and 2007, living standards(declined, did not change, or improved) for which of the following reasons?

• Productivity growth outpaced population growth.
• The number of hours worked remained the same.
• Population growth outpaced productivity growth.

Answer 1

	2006	2007
Population	400,000	408,000
Number of Hours Worked	875,000,000	875,000,000
Real GDP	$7,000,000,000	$7,068,600,000
Real GDP per Person	=7000000000/400000 =17500	=7068600000/408000 =17325
Labor Productivity	=7000000000/875000000 =8	=7068600000/875000000 =8.0784

The growth rate of the population between 2006 and 2007 : 408000-400000/400000x100 = 2%

The growth rate of real GDP per person between 2006 and 2007 is : 17325-17500/17500x100 = -1%

The growth rate of labor productivity between 2006 and 2007 is: 8.0784-8/8x100 = 1%

Assuming that real GDP per person is a good measure of living standards, between 2006 and 2007, living standards(declined) for which of the following reasons?

• Population growth outpaced productivity growth.