Elon Musk announces a truly revolutionary technological proc

Elon Musk announces a truly revolutionary technological process that turns water into energy. The technology is expected to literally double the productivity of workers. But since implementation takes time, the U.S. economy is expected to adopt this technology only over the next 10 years. If true (and people believed it to be true), Musk\'s announcement would have ___________ effect on current employment and ________ effect on the current real wage according to the frictionless labor market model.

a negative / a negative

a negative / a positive

a positive / a negative

a positive / a positive

Solution

If labor productivity is doubled, then ceteris paribus, labode demand will be halved. In a frictionless labor market, this means a negative effect on employment and a negative effect on real wage (because, lower labor demand will reduce real wage).

Answer (a): Negative, Negative