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Because higher wages do not necessarily mean that national income increased. From macroeconomic perspective national income is output. Higher wages in these simple models do not necessarily translate into higher output. For example if these higher wages come from company’s profit then on one hand one (worker) household income increases but another (...


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In economics we measure living standards by the amounts of goods and services people can consume. Increasing labor productivity allows us to produce more goods and services and thus also consume more goods and services, hence it improves the living standards. For example consider classic Cobb-Douglas production function: $$ Y = K^{\alpha} (AL)^{1-\alpha}$$...


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It does, in the long-run. It's partly a question of response time, and as you outline, AD has intervening steps that AS does not (wages in most markets are sticky and take time to adjust, while sticker prices in many markets can change in a day or less). In general, thinking carefully about response times will help alleviate some of the ambiguity in the ...


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