General Business 765

Spring 2002

Answers to Homework #3

1. a. This will cause the supply of labor curve to shift out to the right and for a given labor demand curve will cause the equilibrium wage to decrease while the equilibrium quantity of labor will increase. This will cause a movement along the aggregate production function leading to an increase in production (GDP) and a decrease in labor productivity.

b. Over a long enough time span the increase in the birth rate in the country will lead to the same increases we see in 1a.

c. This will cause a decrease in the level of employment resulting in a decrease in GDP and an increase in labor productivity.

d. This will cause the aggregate production function to shift upwards due to the technological change: this upward shift will result in a higher level of GDP and an increase in labor productivity.

e. This change reflects a change in available technology and its use: it will result in the same changes seen in 1d.

2.

Year	Total Output	Population Growth Rate (relative to prior year)	Growth Rate of output (relative to prior year)	Direction of change in average standard of living
1997	$50,000	X	X	X
1998	$66,000	20%	32%	Increase
1999	$78,400	17%	19%	Increase
2000	$91,200	7%	16%	Increase
2001	$94,400	0%	3.5%	Increase

3.

Y	T	YD	C	I	G	X – M	AE	Direction of Change in Aggregate Production	Inventory Change
100	10	90	80	50	100	20	250	Increase	-150
200	10	190	160	50	100	20	330	Increase	-130
600	10	590	480	50	100	20	650	Increase	-50
1000	10	990	800	50	100	20	970	Decrease	30

1. 8
2. 0
3. 850
4. S = -8 + .2(Y – T)
5. a. 30

b. 90

c. 160

6. 170 people
7. 1000
8. a. 30

b. -37.5

c. 150