Question

The economy has grown by 4% per year over the past 30 years. During the same period, the labor force has grown by 1% per year and the quantity of physical capital has grown by 5% per year. Each 1% increase in physical capital per worker is estimated to increase productivity by 0.4%. Assume that human capital has not changed during the past 30 years. How much has growing physical capital per worker contributed as a percentage of total productivity growth

Answer 1

Answer:

2%

Explanation:

Physical capital per worker contributed to productivity growth = Increased productivity per 1% physical capital * Quantity of physical capital growth rate

- Increased productivity per 1% physical capital = 0.4%

- Quantity of physical capital growth rate = 5%

So, Physical capital per worker contributed to productivity growth = 0.4%*5% = 2%.