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Using the Data and Your Economic Knowledge Assess the Importance of Higher Labour Productivity in Bringing About Improvements to Uk Macroeconomic Performance

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The UK’s macroeconomic performance can be measured in terms of economic growth, inflation, unemployment and the balance of payments on the current account.
One importance of higher labour productivity in the UK is that it means that each member of staff produces more output in the same given time period which will improve the economies position on the PPF by moving closer towards the curve. This is because the economy will be producing more output with the same amount of resources available which indicates a previous under-utilisation of labour in the economy. Furthermore, another importance of higher labour productivity is shown in Extract C, ‘any rise in aggregate demand (AD) will be non-inflationary when improvements in productivity are able to generate greater output,’ which empathises the importance of higher labour productivity in the long-run in terms of economic growth because the output of the economy is increasing without inflation. The benefits of low inflation rates are widespread, particularly to those who have savings. Another reason for why this could be considered is due to the fact that it increases the competiveness of the UK’s trade world-wide, for example because the average cost of producing one good has decreased the firms will have more freedom to lower prices, this has a positive effect on the balance of payment on the current account by bringing it into more surplus. On the other hand, an increase in the labour productivity could potentially result in an increase in structural unemployment because firms don’t need as many workers if they have excess supply, resulting from this would be negative growth due to a negative multiplier effect decreasing the circular flow of income. Another reason why the effects of increased labour productivity in the UK should not be exaggerated is due to the fact that even though the labour production can...

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