Explain the impact of capital deepening on workers
What will be an ideal response?
Capital deepening is an increase in the amount of capital per worker. In a full-employment economy under the assumption that the supply of labor is fixed, an increase in capital shifts the production function upwards because more output can be produced with the same amount of labor. Firms will therefore increase their demand for labor because the marginal benefit from hiring labor will increase. The real wage also rises. Thus workers will enjoy higher wages, and total GDP in the economy will increase.
An increase in the saving rate causes the production function to shift upwards.
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Assume the four major grocery stores in a large metropolitan area decide to meet secretly to fix prices for meat. It would be easiest to maintain this arrangement when:
A) the number of additional competitors is very small. B) the cost conditions for the four firms differ substantially. C) individual firms are able to offer secret price discounts to selected buyers. D) demand for meat and fresh vegetables is falling.
If asset prices fall and inflation expectations remain unchanged, what happens to inflation and unemployment? Defend your answer