Question:
I need help understanding the concepts of full employment, inflationary gaps, and recessionary gaps and current level of unemployment in terms of current and potential GDP.
If a change in productivity occurs, what are the changes to equilibrium output, prices, and the unemployment level.
Assume that right now, the consensus in the economic group is that the economy is already operating below full-employment. Can you help me understand the likely effects of increasing productivity on equilibrium GDP?
Do you think the increase in productivity is likely to move the economy closer to full-employment or farther away?
Regarding inflation, how are price levels are likely to change? Assuming high levels of unemployment, and workers wouldn't be getting wage raises very easily, will the change in productivity likely increase or reduce prices in the economy?