What is the effect on real GDP per person if labor productivity increases? What is the effect on the nation's standard of living?
What will be an ideal response?
Real GDP equals (aggregate hours) × (labor productivity). Hence an increase in labor productivity increases real GDP. Real GDP per person equals (real GDP) ÷ (population). Therefore an increase in real GDP with no change in the population increases real GDP per person. The nation's standard of living is measured by real GDP per person. So, an increase in labor productivity boosts real GDP per person and therefore boosts the nation's standard of living.
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