The slow growth of U.S. incomes during the 1970s and 1980s can best be explained by which of the following?

• A. A decrease in the money supply
• B. An increase in government spending
• C. A decline in productivity growth
• D. A reduction in labor force participation

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the key factors that influence economic growth, particularly the growth of incomes. These include productivity growth, labor force participation, government spending, and money supply changes.
2. Step 2: Recall that productivity growth refers to the increase in output per worker or per hour worked, which is a fundamental driver of long-term income growth and living standards.
3. Step 3: Analyze the options given: a decrease in money supply typically affects inflation and short-term economic activity, an increase in government spending can stimulate demand but does not directly cause slow income growth, and a reduction in labor force participation affects the number of workers but not necessarily income per worker.
4. Step 4: Recognize that a decline in productivity growth means workers are producing less additional output over time, which directly slows the growth of incomes, making it the best explanation for slow income growth during the 1970s and 1980s.
5. Step 5: Conclude that among the options, the decline in productivity growth is the primary cause of slow income growth, as it directly impacts the economy's capacity to generate higher wages and output.