A Level Economics AQA Practice Exam

What impact does increased labour productivity typically have on an economy?

1. It tends to decrease overall production costs

2. It results in a lower standard of living

3. It causes higher unemployment levels

4. It can lead to increased inflation

The correct answer is: It tends to decrease overall production costs

Increased labour productivity generally refers to the amount of goods and services produced by a worker in a given period. When labour productivity rises, it typically means that workers can produce more output without a proportional increase in input, such as hours worked or resources used. This efficiency often leads to a decrease in overall production costs for businesses. Lower production costs can result in various positive economic outcomes. Businesses may benefit from higher profit margins, which can enable them to invest more in expansion, research, and development, or to reduce prices for consumers. This, in turn, can stimulate demand for goods and services, potentially contributing to economic growth. Increased labour productivity can ultimately enhance the standard of living. As businesses become more efficient and costs decrease, this can allow for greater investments in innovation, wages, and worker satisfaction, contributing positively to the economy at large. The other options do not typically align with the effects of increased labour productivity. Higher productivity is likely to contribute to a better standard of living by increasing output and wealth, rather than lowering it. Additionally, it is unlikely to cause higher unemployment levels, as greater productivity can lead to a demand for more skilled workers rather than job losses. Lastly, while there could be scenarios where productivity gains might contribute to inflation