Assume that the hypothetical economy of Molpol has 10 workers in year 1, each wo

Question

Assume that the hypothetical economy of Molpol has 10 workers in year 1, each working 1,400 hours per year (35 weeks at 40 hours per week). The total input of labor is 14,000 hours. Productivity (average real output per hour of work) is $10 per worker.

Instructions: In parts a and b, round your answers to the nearest whole number. In part c, round your answer to 2 decimal places.

a. What is real GDP in Molpol($)?

Suppose work hours rise by 1.2 percent to 14,168 hours per year and labor productivity rises by 5 percent to $10.5.

b. In year 2, what will be Molpol’s real GDP($)?

c. Between year 1 and year 2, what will be Molpol's rate of economic growth(%)?

Explanation / Answer

a) Real GDP = value of the marginal product of 1 hour labor x number of labor units = $10 x 14000 = $140,000

b) Real GDP now changes to $10.5 x 14,168 = $148,764

c) Economic growth rate = growth rate of real GDP = (148,764 - 140,000)*100/140,000 = 6.26 percent.

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