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Chapter 7: Q 16. (page 186)

How do gains in labor productivity lead to gains in GDP per capita?

Short Answer

Expert verified

Gains in labor productivity contribute to increases in GDP per capita since workers earn more as they generate more goods.

Step by step solution

01

Step 1. Defines worker productivity.

The value of goods and services produced by one hour of labor is calculated as worker productivity.

02

Increases in labor productivity translate into higher GDP per capita.

The total amount of products and services produced inside a country is divided by the total population of that country to calculate per capita GDP.

A rise in the standard of living is caused by an increase in labor productivity. This is due to the fact that as workers produce more things, their earnings rise. As a result, they'll have more disposable income at their disposal. As a result, workers will be able to consume more. As a result, the GDP per capita will rise.

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Most popular questions from this chapter

Would you expect capital deepening to result in diminished return? Why or why not? Would you expect improvements in technology to result in diminished returns? Why or why not?

Over the past 50 years, many countries have experienced an annual growth rate in real GDP per capita greater than that of the United States. Some examples are China, Japan, South Korea, and Taiwan.

Does that mean the United States is regressing relative to other countries? Does that mean these countries will eventually overtake the United States in terms of the

growth rate of real GDP per capita? Explain.

Refer back to the Work It Out about Comparing the Economies of Two Countries and examine the data for the two countries you chose. How are they similar?

How are they different?

Education seems to be important for human capital deepening. As people become better educated and more knowledgeable, are there limits to how much additional

benefit more education can provide? Why or why not?

Why does productivity growth in high-income economies not slow down as it runs into diminishing returns from additional investments in physical capital and human capital? Does this show one area where the theory of diminishing returns fails to apply? Why or why not?
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