1. our job in this question is to explain a couple of puzzling facts about the US manufacturing sector over the last 20 years. Employment in US manufacturing is roughly 5.5 million jobs lower than it was in 1999. However, the real value of US manufacturing output rose 14% from 1999 to 2010. Naturally, making more output with fewer workers has shown up in the official statistics as a sharp increase in labor productivity.

Specifically, you need to address how it's possible to produce the same output with fewer workers - what's making US manufacturing workers more productive? A big hint: the rental price of capital follows long-term interest rates in the US pretty closely. If you argue that something causes firms to change their behavior, use a specific argument like "buck for the bang" to explain why.If you're not already familiar with what happened to long-term interest rates in the US over this period, google ^TNX and click the "max" link under the chart to see a graph of 10- Year Treasury Bond rates. Start with lower interest rates, think through what that means for input mix, and then connect it back to labor productivity.