Answer to Question #297604 in Macroeconomics for Namra

Question

Suppose that government of Pakistan gives soft loans to producer.how would You expect such a change to affect output, employment and the real wages in the classical model

Answer 1

Suppose that government of Pakistan gives softy loans to producer. How would you expect such a change to affect output, employment and real wages in classical model?

Output; with increased funds to a producer, it will enable the producer to increase raw materials to the firm. With increased factors of production, it will to the producer to increase its capacity to produce, which will lead to increased output. Production of the industry is directly proportional to funding. In classical theory the factory is considered as the machine and the human beings as the different components of the machine. With the increase of the soft loan, the machine/factory becomes more efficient.

Employment; with increase in output, there will be definite increase in need of man power to increase to cater for the production. This will definitely lead to increase in employment. In classical economics labour is among the component of the machine. This will in the long-run help the government of Pakistan to create employment for its citizens.  the objective of each government to ensure that it creates employment for its citizens.

Real wages; this the total amount of goods and services that can be bought by with a wage. With the increased economy by the funding from the government, this will lead to increased purchasing power of the real wage of the workers in the economy.