According to the neoclassical theory of distribution, in an economy described by a Cobb-Douglas production function, workers should experience high rates of real wage growth when:
A) real interest rates are high.
B) real interest rates are low.
C) average labor productivity is growing rapidly.
D) capital's share of income is growing rapidly.

Question

Quizplus · Accepted Answer

According to the neoclassical theory of distribution, in an economy described by a Cobb-Douglas production function, real wage growth is primarily driven by changes in average labor productivity. Therefore, when average labor productivity is growing rapidly, workers should experience high rates of real wage growth. Real interest rates and capital's share of income are not the primary drivers of real wage growth in this theory.

According to the Neoclassical Theory of Distribution, in an Economy