2. Potential GDP Figure shows the effect of an increase in labor productivity. The increase in labor productivity shifts the production function upward from PF0 to PF1. C 18 The Labor Market An increase in labor productivity increases the demand for labor and shift the demand for labor curve rightward from LD0 to LD1. With no change in the supply of labor, the real wage rate rises to $45 an hour and aggregate labor hours increase from 200 billion to 225 billion. Potential GDP rises from $12 trillion to $18 trillion.
3. The combined effects of these changes increased employment, the real wage rate, and potential GDP.