Homework Answers
D. Rise in the money wage; an increase
The long run effects of new infrastructure expenditure are
a rise in the money
wage rate and an
increase in potential GDP.
Explanation - When the infrastructure improves, the cost of production and transportation will decrease, which will increase the productivity of labors. As a result, their money wage will also increase. This increase in wages will in turn raise the consumption expenditure and the standards of living. Thus, there will be an increase in the potential GDP as the economy grows.
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