Over the next 50 years the Japanese population is expected to decline, while the fraction of the population that is retired is expected to increase sharply.

What are the implications of these population changes for total output and average living standards in Japan, assuming that average labor productivity continues to grow?

multiple choice 1

• Average living standards will fall if the reduction in output due to fewer active workers exceeds the increase in production due to higher productivity.
• Increased productivity may keep total output from diminishing due to fewer workers, which might lead to an improvement in average living standards.
• Increased productivity may keep total output from diminishing due to fewer workers, but only an increase in total output can guarantee an improvement in average living standards.
• A smaller fraction of the population working will always lead to a reduction in output, which means diminishing average living standards.