Economics When Labor Demand Increases Thesis

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Transfer payments include welfare ($5) and UI ($2). Thus, net taxes are 12-7 = $5.

A c) Total planned investment is the new capital stock, so the increase in capital stock, plus depreciation. In this example new capital stock = 103-100 + 7 = $10.

A d) Real GDP = (C + I + G) / (1 + r) = (50+10+5) / (1.06) = 61.32 e) Total savings = Disposable income - consumption. Disposable income = GDP - Net Tax. Thus, DI = 65-5 = 60. Total savings = 60-50 = 10 f) Total leakages = Net taxes + Savings = 5 + 10 = 15 g) Total injections = I + G = 10 + 5 = 15

8-5) if the capital stock decreases, workers will be less efficient, which will reduce the production function.

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However, companies will adjust be reducing demand for labor. This will increase worker productivity. The net effect may be that the productivity function moves back towards equilibrium. The remaining workers are likely to be the best workers, which will contribute to this move. However, gross output will drop, hampering the productivity function, such that equilibrium is not fully reached. The net will be a shift downward in the production function, but not as far downward as would occur if the labor demand curve remained static.

8-7) as the capital stock rises, so will the production function, all other factors being equal. Likewise, if investment rises, so will capital.....

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