Question

Suppose labor productivity is $100,000 per worker in 2015. Calculate the value of labor productivity in 2035 (20 years later):

Answer 1

Answer:

A.$ 167,088.75

B.$66,760.79

C.With higher growth rate labor productivity will be 2.50 times the labor productivity with lower growth rate.

Explanation:

a) Labor Productivity in 2015 = $100,000

Growth rate = 2.6 %pa = 0.037

Therefore labor productivity per worker in 2035 will be 100000(1 + 0.026)20

= $ 167,088.75= $167,100( rounded to nearest $100)

b) Labor Productivity in 2015 = $100,000

Growth rate falls by 2.0% per annum

Growth rate = -2.0%pa = -0.02

Therefore labor productivity per worker in 2035 will be 100,000(1-0.02)20

= $66,760.79 = $ 66,800 ( rounded to nearest $100)

C.With higher growth rate, labor productivity in 2035 is $ 167,088.75 and with lower growth rate labor productivity in 2035 will be $66,760.79

So, we can say that, in 2035, with higher growth rate labor productivity will be ($167,088.75/$66,760.79)= 2.50 times the labor productivity with lower growth rate.

Answer 2

Answer:

Consider the following explanation.

Explanation:

Productivity in 2035 = productivity in 2015 * ( 1+r)^20

where r = rate of growth, and 20 is the number of years.

Productivity in 2035 = 100000 *( 1 + .026)^20

= $167088.8

= $1670 rounded to the closest 100.

If productivity falls 2% a year

Productivity in 2035 = 100000 *( 1 - .02)^20

= $ 66760.8

= $667 rounded to the closest 100.