If 1 - b = WN/PY where W is the nominal wage rate,N is the quantity of labor input,and PY is total income in nominal terms,then labor's share of national income shrinks if A)(w - p) (y - n). B)(w - p) (y - p). D)(w - n)

Question

If 1 - b = WN/PY where W is the nominal wage rate,N is the quantity of labor input,and PY is total income in nominal terms,then labor's share of national income shrinks if A)(w - p)> (y - n). B)(w - p)< (y - n). C)(w - n)> (y - p). D)(w - n)< (y - p).

Quizplus · Accepted Answer

Labor's share of national income is given by (W/P) * N/Y. From the given equation, we can write (W/P) = (1-b)*(Y/N), which means labor's share of national income is (1-b). If we assume that (W-P)/(Y-N) represents the change in relative prices between labor and output, then we can see that if (W-P) is less than (Y-N), then labor's share of national income will shrink. This is because the increase in nominal income (PY) will be more than the increase in nominal wages (WN), which means labor's share of national income will be lower. Therefore, the correct choice is B.

If 1 - B = WN/PY Where W Is the Nominal