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Svetradugi [14.3K]
3 years ago
14

Over the past year, productivity grew 2%, capital grew 1%, and labor grew 1%. If the elasticities of output with respect to capi

tal and labor are 0.2 and 0.8, respectively, how much did output grow
Business
1 answer:
Rainbow [258]3 years ago
7 0

Answer:

The output growth rate is 3%.

Explanation:

Use the growth accounting equation as follow

ΔA% = ΔY% - αΔK% - βΔL%

Where

∆A = change in productivity = 2%

∆K = growth in capital =

∆L = growth in labor =

α = elasticity of capital = 0.2

β = elasticity of labor = 0.8

∆Y = change in output = ?

Placing values in the formula

2% = ΔY% - ( 0.2 x 1% ) – ( 0.8 x 1% )

2% = ΔY% - 1%

ΔY% = 2% + 1%

ΔY% = 3%

Hence, the output growth rate is 3%.

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