a) Consider an economy in which the labour force grows by 2.7 percent per annum, while thecapital stock grows by 4 percent per annum. Suppose 55 percent of national income goesto labour and 45 percent to capital.i. If the residual were R = 0, what rate of growth would the economy achieve?Calculate the value of the residual (R) if the country's actual rate of growth has been 4.5 percentii.per annum.b) Suppose that a developing economy can be modeled with the Solow growth model.The constant returns to scale production technology is:Y(t) = K(t)“ H(1)* (A(t)L(t))*Where Y(t) is output, K(t) is physical capital, H(t) is human capital, A(t) is the level of technology, andL(t) is labour. The parameters a, º and A are positive and there is perfect competition in the markets foroutput and the inputs.Assume that during the 2005-2018 period, the country's growth rate averaged 8.5 percent and arecent growth-accounting study showed that the residual accounted for only 1.2 percent ofcountry's outstanding growth performance. This growth-accounting analysis used weights of0.25 for physical capital and 0.58 for labour.i. If the country's labour force and physical capital grew by 2.6 percent and 15 percentrespectively during this period, determine the growth rate of the country's human capital?ii. What fraction of the overall 8.5 percent growth rate is attributable to physical and humancapital?

Given: Growth of labor force=2.7% Growth of capital=4% Share of labor=55% Share of income=45% Note:…

a) Consider an economy in which the labour force grows by 2.7 percent per annum, while the capital stock grows by 4 percent per annum. Suppose 55 percent of national income goes to labour and 45 percent to capital. If the residual were R = 0, what rate of growth would the economy achieve? ii. Calculate the value of the residual (R) if the country's actual rate of growth has been 4.5 i. percent per annum.

a) Consider an economy in which the labour force grows by 2.7 percent per annum, while the capital stock grows by 4 percent per annum. Suppose 55 percent of national income goes to labour and 45 percent to capital. If the residual were R = 0, what rate of growth would the economy achieve? ii. Calculate the value of the residual (R) if the country's actual rate of growth has been 4.5 i. percent per annum.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter3: Scarcity, Trade-offs, And Production Possibilities

Section: Chapter Questions

Problem 11P

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