(a) Suppose labor productivity and the GDP deflator are growing at 2 percent per year. For labor’s share of income to remain constant, how fast must nominal wages be increasing?
(b) Suppose that labor productivity growth declines to 1.2 percent per year. What happens to labor’s share of income if the growth rates in nominal wages and the GDP deflator are unchanged? Suppose that the Fed keeps the rate of inflation constant. What must the new growth rate of nominal wages be for labor’s share of income to remain constant?
(c) Suppose that labor productivity growth improves to 3 percent per year. What happens to labor’s share of income if the rates of growth in nominal wages and the GDP deflator are unchanged? Suppose that the Fed keeps the rate of inflation constant. What must the new growth rate in nominal wages be for labor’s share of income to remain constant?