Author Question: To measure economic welfare, one needs only to measure real GDP. Indicate whether the statement ... (Read 106 times)

Pineappleeh · **on:** Jun 29, 2018

To measure economic welfare, one needs only to measure real GDP.

Indicate whether the statement is true or false

Question 2

How will an increase in physical capital affect labor productivity, labor demand, and potential GDP?

What will be an ideal response?

vboyd24 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

FALSE

Answer to Question 2

An increase in capital increases labor productivity. It shifts the production function upward and, because productivity has increased, it increases the demand for labor. Equilibrium employment increases because of the increase in demand for labor. Potential GDP increases because employment increases and because the production function has shifted upward.