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A. A study conducted by The Conference Board found that “(t)he productivity level in the Euro Area, measured as output per hour in US dollars (after adjustment for differences in relative price levels using purchasing power parities), is just 76. 7 percent of the US level in 2013, leaving an almost 25 percent gap between Europe and the United States”. This is consistent with the common view that American workers are (some of ) the most productive in the world (for example, on January 24, 2012, in his State of the Union Address, President Barak Obama stated

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Please answer two questions and your answer to each question must be at most 150 words:

Q#1. Answer one of the following questions (answer either question A or B):

A. A study conducted by The Conference Board found that “(t)he productivity level in the Euro Area, measured as output per hour in US dollars (after adjustment for differences in relative price levels using purchasing power parities), is just 76. 7 percent of the US level in 2013, leaving an almost 25 percent gap between Europe and the United States”. This is consistent with the common view that American workers are (some of ) the most productive in the world (for example, on January 24, 2012, in his State of the Union Address, President Barak Obama stated “Our workers are the most productive on Earth, and if the playing field is level, I promise you– America will always win.“– https://www.whitehouse.gov/the-press-office/2012/01/24/remarks-president-state-union-address%20). What factors can explain U.S. labor productivity to be higher than most countries’ labor productivity?

B. According to the International Monetary Fund’s (IMF) “An Uneven Global Recovery Continues“–http://www.imf.org/external/pubs/ft/weo/2014/update/02/, from July 2014, real GDP in emerging market and developing economies grew 5.1% in 2012 and 4.7% in 2013. At the same time, real GDP in advanced economies grew only 1.4% in 2012 and 1.3% in 2013. Do these growth rates over the last few years indicate that differences in real GDP per person around the world are shrinking, growing, or staying the same (click the “World Economic Outlook: Legacies, Clouds, Uncertainties“–https://www.imf.org/external/pubs/ft/weo/2014/02/pdf/c1.pdf link for an update).

Q#2. Many people have difficulty borrowing as much money as they want to, even if they are confident that their future income will be high enough to pay back the borrowed funds. For example, many students in medical school expect to earn high incomes after they graduate and become physicians. If they could, they would probably borrow now in order to live more comfortably and pay the loans back out of their higher future income. Unfortunately, banks are usually reluctant to make loans to people who have currently low incomes even if they are expected to be higher in the future. If people could borrow as much as they would like to (with the intention of paying banks back!), would you expect consumption to become more or less sensitive to current income? Briefly explain.

 
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