Question

What happens with labor productivity if real GDP falls by 2% while work hours fall by 10%

Answer 1

Answer:

Option D, might fall, but we cannot know without more information

Explanation:

Complete question

If real GDP falls by 2% while work hours fall by 10%, then labor productivity:

a. falls

b. is unchanged

c. rises

d. might fall, but we cannot know without more information

Solution -

As we know

Productivity is equal to Real GDP/ Total Hours Worked. This means that if working hours of the labor force reduces then the productivity will rise.

Here GDP also falls but compared to the total working hours the fall of GDP is 1/5. Hence, the productivity might fall/rise as compared to the case when neither the GDP nor the working hours were falling.

Hence, option D is correct