a. Correct

The time path of output per worker is simply the same as the time path of labor productivity,  . So what determines the time path of labor productivity? We’ll assume that it is growing at a constant rate, meaning that it goes up by the same percent every period of time,

Here, we’ve written  to be clear that we mean labor productivity at any given time  .  is labor productivity in the initial moment of time. The exponential term says that labor productivity grows at the rate  over time.

b. Correct

Findings highlight that educational credentials have a stronger impact on productivity than on wage costs. Firms’ profitability is found to rise when lower educated workers are substituted by higher educated ones. This effect is found to be more pronounced among younger workers and women. Findings thus suggest that the productivity to wage cost ratio of low-educated workers is detrimental to their employability, especially when young or female.

c. Not correct

The income approach looks at the final income in the country, these include the following categories : wages, salaries, and supplementary labor income; corporate profits interest and miscellaneous investment income; farmers’ income; and income from non-farm unincorporated businesses. Two non-income adjustments are made to the sum of these categories to arrive at GDP:

• Indirect taxes minus subsidies are added to get from factor cost to market prices.
• Depreciation (or Capital Consumption Allowance) is added to get from net domestic product to gross domestic product.

d. Correct

In a closed private economy, saving must equal investment. This is a matter of definition. Saving is defined as income less consumption. All output is defined as either being consumer goods or capital goods. Consumption is spending on consumer goods and investment is spending on capital goods. All expenditure is either on consumer goods or capital goods. Since income equals expenditure, and consumption is itself, then income less consumption must equal expenditure less consumption. By the definition of saving and investment, saving and investment are always equal.

The gross domestic product is both total income in an economy and the total expenditure on the economy’s output of goods and services. GDP (denoted as y) is divided into four components of expenditure: consumption (C) investment (I) government purchases (G) and the net exports (NX) we write-

Y=C+I+G+NX

We simplify our analysis by assuming that the economy we are examining is closed. A closed economy is one that does not interact with other economies. A closed economy does not engage in international trade in goods and services. Therefore net exports (NX) are also zero. In this case we can write-

Y=C+I+G

To see what this identify can tell us about financial market subtract C and G from both sides of this equation. We obtain-

Y-C- G =I

The left side of this equation (Y-C-G) is called national saving or just saving and is denoted S. substituting S for Y-C-G. We can write the last equation as-

S=I

This equation states that saving equals investment.