1)Comment critically on the following statements: Big government is bad for the economy. A country with a bigger welfare state is less dynamic. Its workers are less compelled to work, while its entrepreneurs are less motivated to create wealth.

2)Critically comment: Orthodox economists consider that labour demand is a decreasing function of the real wage rate. Therefore, a decrease in real wages must result into an increase in overall aggregate output.

1)Big government is not inherently bad for an economy. Government intervention in the form of regulation is necessary to ensure that producers and corporations do not exploit their employees or consumers. However, too much government intervention can stifle the growth of the economy. While countries with bigger welfare states might be less dynamic than free-market economies, it can be a worthwhile tradeoff for a higher quality of life due to better worker and consumer protections.

2)Under the classical theory of employment, labor and wage rates are uniquely connected. According to orthodox economists, labor can be treated as a product in the employment market.

Under this framework, wages are typically equal to labor. Therefore, as more people are employed, the amount of labor on the market diminishes, leading to a drop in the real wage rate due to a lower demand for labor. Since an increase in the demand for labor leads to a decrease in the real wage, it follows that the demand for labor is a decreasing function of the real wage rate. Additionally, since a decrease in real wages corresponds to an increase in the levels of employment, it must result in an increase in the overall aggregate output.