Part A — Productivity, its drivers and long-run growth on the model
This worksheet develops the supply-side skills that complete Unit 4: defining and explaining labour productivity, identifying its drivers and the policies that support them, and showing a productivity gain as a rightward shift of LRAS on the AD/AS model.
Concepts
1. Define labour productivity, and explain how it differs from simply increasing the total hours worked in the economy.
2. Explain what the aggregate production function (APF) shows and how it relates to productivity.
3. Explain why long-run economic growth is more important for living standards than short-run demand management.
Drivers and policy
4. Complete the table.
| Driver | What it means | Example government policy |
|---|---|---|
| Human capital | ||
| Capital deepening | ||
| Technological progress |
5. Explain why technological progress is often described as the most important driver of long-run growth.
The model
6. On a fully labelled AD/AS diagram, show the effect of a rise in labour productivity. Label the LRAS shift and the change in real output and the price level, and explain why this is described as non-inflationary growth.
7. Compare, with reference to the curve that shifts in each case, the effect of (a) an increase in aggregate demand and (b) an increase in productive capacity. Explain why only one of these raises living standards in the long run.