Question

The diagram below shows the aggregate production function for a country on the left real in t ons of 2012 dollars and tabor hours in billions, and the national labor market on the rise real wage in 2012 dollars and labor hours in billions). Use the diagram to answer the following questions ste Labor market LOP NOZ LO Q of Laber Qot Lahor a. Assume the economy is as drawn above. Suppose that as time passes, the level of technology in the country increases. Draw in the change to LD. Shift the curve so that the quantity of labor increases to 7 billion hours. • Total hours worked in billions): • Real wage (in 2012 dollars): . Because technology improved, shift the production function up. • Mark a point on the production function where the economy is producing (label as C). • Real GDP (in trillions of 2012 dollars): (according to your graph) Suppose an economy has a real GDP of $300 billion rupees. If the economy is growing at 7% a year, what will be its real GDP (in billions): In 10 years? In 20 years?

Answer 1

Z2-6N LD Q of Laber Qot Lahor ftochopiti

a. Increase in technology will shift the labor demand curve rightwards, because the demand for labor increases as technology improves as it increases production capacity of the firms. Increase in production technology will increase the amount of labor demanded and thus labor demand curve will shift rightwards.

Total hours worked : 7

Real Wages : As the diagram shows, the real wages have increased to $32.

The production function will shift upwards and new production point is depicted as point C.

Thus, real GDP = $ 20 trillion