Question

Use the following information to answer the questions:

GDP per capita can be shown to equal average labor productivity times the proportion of the population that is employed (GDP/population= Y/L * L/population)
(a) The two factors that determine a nation’s standard of living are: 1) the proportion of the population that works, and 2) its output per worker. The United States has an aging population and the proportion of the population that works is expected to decrease. Mexico has a relatively young population and, thus, the proportion of its population that works is expected to increase in the future. Given these circumstances, which of these two factors do you think is more relevant in each country for their standard of living? Explain your answer.
(b) Explain what happens with Econoland’s total output (GDP) and its standard of living (as measured by GDP per-capita) between 2014 and 2015, if we know the following information? The population of Econoland remains constant at 1,000 persons during both years. The number of employed workers increases from 400 in 2014 to 440 in 2015, but labor productivity, as measured by output per employed worker, decreases from $2,000 to $1,900 during the same time period. Show your derivations.

Answer 1

A.) Since the United States has an aging population and thus an expected decline in working population in the future, therefore, increasing the output per worker seems more relevant in the United states than increasing the proportion of working population. Because Mexico on the other hand boasts a youthful population, Mexico can increase its standard of living by either increasing its output per worker or by increasing the proportion of the population that works.

B.) GDP INCREASES.....

STANDARD OF LIVING ALSO INCREASES....

INCREASE IN NUMBER OF EMPLOYED WORKERS HAS GREATER WEIGHT THAN THE DECREASE IN LABOR PRODUCTIVITY

Step-by-step explanation:

A.) Since the United States has an aging population and thus an expected decline in working population in the future, therefore, increasing the output per worker seems more relevant in the United states than increasing the proportion of working population. Because Mexico on the other hand boasts a youthful population, Mexico can increase its standard of living by either increasing its output per worker or by increasing the proportion of the population that works.

2.). - - - - - - - - - - - - - - - - - - - - - YEAR - - - - - -

------ - - - - - - - - - - - - - - - 2014 - - - - - - - 2015

Population - - - - - - - - - - 1000 - - - - - - - 1000

Employed workers - - - - 400 - - - - - - - - 440

Labor productivity - - - - 2000 - - - - - - - 1900

GDP = Labor productivity × employed pop.

2014 GDP = 2000 × 400 = 800,000

2015 GDP = 1900 × 440 = 836,000

GDP INCREASES.....

STANDARD OF LIVING ALSO INCREASES....

INCREASE IN NUMBER OF EMPLOYED WORKERS HAS GREATER WEIGHT THAN THE DECREASE IN LABOR PRODUCTIVITY