The effect of an increase in labour productivity,assuming no change in the supply of labour,is i.an increase in the real wage.
Ii)an increase in potential GDP.
Iii)a decrease in the demand for labour.

Question

Quizplus · Accepted Answer

An increase in labour productivity means that more goods and services can be produced with the same amount of labour, leading to an increase in potential GDP (ii) without a decrease in the demand for labour (iii). The increase in potential GDP will lead to an increase in the demand for labour in the long run, which could lead to an increase in the real wage (i) as the economy grows. Therefore, the best choice is B, which recognizes the positive effects of an increase in labour productivity on potential GDP and a possible increase in the real wage in the long run.

The Effect of an Increase in Labour Productivity,assuming No Change