Suppose labor productivity is $100,000 per worker in 2015. Calculate the value of labor productivity in 2035 (20 years later):

Instructions: Enter your responses rounded to the closest $100.

a. Productivity continues to grow by 2.6 percent per year.

U. S labor productivity in 2035 would be $ per worker.

b. Productivity falls to 2.0 percent per year (the average productivity growth between 1970 and 2009).

U. S. labor productivity in 2035 would be $ per worker.

A.$ 167,088.75

B.$66,760.79

C. With higher growth rate labor productivity will be 2.50 times the labor productivity with lower growth rate.

Explanation:

a) Labor Productivity in 2015 = $100,000

Growth rate = 2.6 %pa = 0.037

Therefore labor productivity per worker in 2035 will be 100000 (1 + 0.026) 20

= $ 167,088.75 = $167,100 (rounded to nearest $100)

b) Labor Productivity in 2015 = $100,000

Growth rate falls by 2.0% per annum

Growth rate = - 2.0%pa = - 0.02

Therefore labor productivity per worker in 2035 will be 100,000 (1-0.02) 20

= $66,760.79 = $ 66,800 (rounded to nearest $100)

C. With higher growth rate, labor productivity in 2035 is $ 167,088.75 and with lower growth rate labor productivity in 2035 will be $66,760.79

So, we can say that, in 2035, with higher growth rate labor productivity will be ($167,088.75/$66,760.79) = 2.50 times the labor productivity with lower growth rate.

Consider the following explanation.

Explanation:

Productivity in 2035 = productivity in 2015 * (1+r) ^20

where r = rate of growth, and 20 is the number of years.

Productivity in 2035 = 100000 * (1 +.026) ^20

= $167088.8

= $1670 rounded to the closest 100.

If productivity falls 2% a year

Productivity in 2035 = 100000 * (1 -.02) ^20

= $ 66760.8

= $667 rounded to the closest 100.