Question

Real wage rate Quantity of labor demanded (2005 dollars (millions of hours per hour) per month) 90 Quantity of labor supplied (millions of hours per month) 7.15 7.65 70 8.00 60 8.50 9.00 20 2) The table above gives the labor market for a small economy. A minimum wage law that sets the minimum wage at $8.50 per hour produces (1 points) A) equilibrium in the labor market. B) a labor surplus of 25 million hours. C) a labor shortage of 25 million hours. D) a labor surplus of $0.50 per hour. 3) Suppose real GDP grows at 9 percent per year and the population grows at 2 percent per year. How many years will it take for real GDP per person to double? Use the Rule of 70 to answer this question. Show your work. (2.5 points)

Answer 1

(2) (B)

When wage rate = 8.5, quantity of labor demanded (Ld) = 45 million & quantity of labor supplied (Ls) = 70 million

Since Ls > Ld, there is a surplus of (70 - 45) million = 25 million.

(3)

Real GDP per person = Real GDP / Population, so

Growth rate of Real GDP per person = Growth rate of Real GDP - Growth rate of Population = 9% - 2% = 7%

Using rule of 70,

Doubling period = 70 / 7 = 10 years