Lesson eLearning

Real GDP grew by 5 % in a year and the employment elasticity of the formal sector with respect to GDP is 0.6. What is the expected percentage change in formal sector employment?

hard MCQ 4 marks Class 12 · Economics · Employment Growth Informalisation and Other Issues
  1. Formal employment will increase by 3 %.
  2. Formal employment will increase by 5 %.
  3. Formal employment will increase by 8 %.
  4. Formal employment will decrease.
Answer
Formal employment will increase by 3 %.

The correct answer is Formal employment will increase by 3 %. — Conclude that formal sector employment is expected to rise by 3 %.

Step-by-step solution

  1. Recall the elasticity relationship: %ΔFormal Employment = Elasticity × %ΔGDP.
  2. Insert the numbers: 0.6 (elasticity) × 5 % (GDP growth).
  3. Calculate 0.6 × 5 = 3.
  4. Conclude that formal sector employment is expected to rise by 3 %.
Common mistake: Treating elasticity as an additive increase rather than a multiplier of the growth rate.

Concept tested: Elasticity applied to formal sector

Published · How this solution was prepared and checked

← All Employment Growth Informalisation and Other Issues questions