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Question
Suppose productivity increases by 5% in industry X and 2% in industry Y. Further suppose the demand for X has fallen while the demand for Y has increased. If economy-wide productivity and the average wage each rise by 3%, we should expect that:
a. output and employment in X will increase relative to Y
b. output and employment in X and Y will not change relative to one another, since wages will increase by 5% in X and 2% in Y
c. output and employment in Y will increase relative to X
d. no statement can be made concerning output and employment in either industry without more information
Answer
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