Question

Discuss the impact of increasing the minimum wage on demand and supply for labor

Suggest ways to increase economic growth

Answer 1

Minimum wage is a the wage determined by the government in favour of labourers. If minimum wage is greater than the competitive wage, supply of labour will increase whereas demand for labour will decrease. When minimum wage is increased, supply of labour exceeds the demand for labour. Hence, there is shortage in the demand for labourers because at a higher wage, employers will be reluctant to hire additional labourers.

WAGES MINIMUM WAGE we NUMBER OF LABOURERS

Ways to increase economic growth

a) reducing interest rates induces higher investment which further raises the aggregate spending. Growth in economy occurs.

b) Increase in net exports leads to higher growth of the economy

c) devaluation of domestic currency with respect to foreign currency leads to larger exports which inturn increases the GDP.

d) increase in real wages increases the purchasing power of the consumer which further increases aggregate spending. This helps the economy to grow further.