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Which of the following occurs when labour productivity rises ?
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- The equilibrium nominal wage falls.
- The equilibrium quantity of labour falls.
- Competitive firms will be induced to use more capital
- The labour demand curve shifts to the right
- The equilibrium nominal wage falls.
Correct Option: D
As labour productivity increases, the production function shifts up and simultaneously the labor demand curve shifts out and right. At a given real wage, more workers are hired and output increases. Similarly, as the capital stock increases, the production function shifts up and simultaneously the labor demand curve shifts out and right.
