Question

According to the neoclassical theory of distribution, in an economy described by a Cobb Douglas production function, workers should experience high rates of real wage growth when 

a. marginal labor productivity is growing rapidly 

b. the capital stock is growing slowly 

c. the labor force is growing rapidly. 

d. labor productivity is growing slowly

Answer 1

It shall be noted that according to the neoclassical theory of distribution, the real wage equals the marginal product of labor. Because of diminishing returns to labor, an increase in the labor force causes the marginal product of labor to fall. Hence, the real wage falls.

Given a Cobb–Douglas production function, the decrease in the capital stock will decrease the marginal product of labor and will decrease the real wage. With less capital, each worker becomes less productive

As per the neoclassical theory of distribution, in an economy that is described b a Cobb-Douglas production function, workers would experience a higher rate of real wage growth when the average productivity of the labor is growing rapidly.

That means the rapid growth of the marginal labor productivity would lead to a higher rate of real wage growth of the workers.

Hence, the correct answer is a. marginal labor productivity is growing rapidly

Answer 2

a. marginal labor productivity is growing rapidly