QUESTION An unusually large age cohort (e.g. the baby boomers) reaches the age o

Question

QUESTION An unusually large age cohort (e.g. the baby boomers) reaches the age of retirement. Assuming all of them are employed right before they go into retirement and nothing else changes in the economy, their retirement will have the following effects Othe unemployment rate will decrease and the labor force participation rate will decrease the unemployment rate ill increase and the labor force participation rate will decrease Othe unemployment rate will increase and the labor force participation rate will increase QUESTION L Suppose the production function is given by Y= K machines available. In the long run O the output produced will be 1,500 and the overall income created in the economy will be 2,000 and there are 10,000 workers and 16 the output produced will be 2,000 and the overall income created in the economy will be 1,500 125 4 the real wage rate will beand the overall income created in the economy will be 2,000 the real wage rate will beand the real income earned by all the workers combined will be 1,500 20

Explanation / Answer

Second option is correct. When baby boomers retire, labor force is reduced because employment pool is reduced. This increases unemployment rate and decreases LFPR

Workers are paid real wage rate (marginal product of labor). MPL = (3/4)(K/4)^(1/4). This becomes (3/4)*(16/10000)^(1/4) = 3/20. Total income is (16)^0.25 x (10000)^0.75 = 2000 out of which capital share is 1/4 and labor share is 3/4 which is 1500. Hence fourth option is correct.

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