Answer to Question #253064 in Macroeconomics for Mehwash Sk

Question

One recent magazine article on economic recovery from a recession argued: “Labor productivity growth usually accelerates in the first year of an expansion, because firms are slow to hire new labor.” 

Answer 1

The statement is true.

This is because during a recession, many businesses fail and those that survive cut back their activities in order to reduce costs.

An economic recovery after a recession is characterized by improvement in business activity. GDP grows , income levels rise and the rate of unemployment is reduced.

Labor productivity growth accelerates in the first year of expansion because the economy undergoes a phase of adaption and adjustment to new conditions and firms are slow to hire new labor. There are no much expenses incurred by the firm in form of payment of wages and salaries. At this stage, the factors that triggered the recession in the first place and also the new policies set by the government and the central bank following the recession are still being assessed.