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In the essay, "Economic Possibilities for Our Grandchildren," written in 1930, John Maynard Keynes predicted that economic growth we would "in a hundred years...(be) eight times better off in the economic sense than we are today." In 2015, U.S. real GDP per capita was 6.4 times larger than in 1930, and with 15 years to 2030, it looks like he made a very good prediction. The second part of his prediction has proved less accurate. Keynes envisioned that we would be so rich by 2030 that it would only be necessary to work "three-hour shift or a fifteen-hour week," yet the average American still works about 35 hours a week. Using the labor demand and labor supply model, and substitution and income effects, explain what Keynes assumed about the relative importance substitution and income effects that caused this prediction about very short work weeks to be inaccurate.

 

 

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