In the Bank of England's Monetary Policy report published in February 2023, we can read: “Potential supply growth is estimated to have slowed to around 1.7% over 2010–19, from around 2.7% in the decade leading up to the financial crisis. This was driven by a very marked and sustained fall in productivity growth, much of which the [Monetary Policy Committee] has judged to be structural and therefore reflected in potential productivity. [...] Following the financial crisis, manufacturing productivity growth fell back sharply.” Use a labour market graph (Wage-Setting and Price-Setting) to represent the scenario described in the extract. In the graph, highlight what happens to equilibrium employment, unemployment and real wage and very briefly explain what this means for actual output in the UK economy. (50 words max)
In the Bank of England's
“Potential supply growth is estimated to have slowed to around 1.7% over 2010–19, from around 2.7% in the decade leading up to the financial crisis. This was driven by a very marked and sustained fall in productivity growth, much of which the [Monetary Policy Committee] has judged to be structural and therefore reflected in potential productivity. [...] Following the financial crisis, manufacturing productivity growth fell back sharply.”
Use a labour market graph (Wage-Setting and
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