Consider a small island country whose only industry is weaving. The following table shows information about the small economy in two different years. Complete the table by calculating physical capital per worker as well as labor productivity. (Hint: Recall that productivity is defined as the amount of goods and services a worker can producer per hour. In this problem, measure productivity as the quantity of goods per hour of labor.
Year Physical Capital Labor Force Physical Capital per Worker Labor Hours Output Labor Productivity
2013 120 60 3300 23100
2014 400 100 3500 49000
Based on your calculations, _? in physical capital per worker from 2013 to 2014 is associated with ? in labor productivity from 2013 to 2014.
Suppose you're in charge of establishing economic policy for this small island country.
Which of the following policies would lead to greater productivity in the fishing industry?
a. Encouraging saving by allowing workers to set aside a portion of their earnings in tax-free retirement accounts.
b. Subsidizing research and development into new weaving technologies
c. Sharply increasing the interest rate on student loans to people pursuing advanced degrees in weaving.
d. Imposing restrictions on foreign ownership of domestic capital