GOP Millions of 2005 dollar labor (billions of hown per year) 5) The country of Kemper is on its aggregate production function at point w in the above figure

Economics Nov 07, 2020

GOP Millions of 2005 dollar labor (billions of hown per year) 5) The country of Kemper is on its aggregate production function at point w in the above figure. The government of Kemper passes a law that makes 4 years of college mandatory for all citizens. After all citizens have their education, the economy will A) move to point such as Y. B) remain at point W. C) move to point such as X. D) move to point such as Z.

Expert Solution

The correct option is a. Due to increase in the level of education attained, the skills are enhanced, increasing labour productivity. This shifts the production function upwards. However, the hours of labour may not increase as skilled labour gets higher wages per hour, and the income effects may dominate, causing lower working hours. That is why economy jumps to a higher production function but not more hours of labour.g

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