a) What is the growth rate of output per worker before the change? What happens to this growth rate in the long run? (b) Perform a growth accounting exercise for the economy, decomposing the growth rate in output per capita into components contributed by capital per capita growth and technology growth. What is the contribution of the change in g to output per capita growth according to this formula? (c) In what sense is the growth accounting result in part b producing a misleading picture of this experiment? Explain why this is the case.
Consider an economy with a Cobb-Douglas production function with α = 1/3 that
begins in steady state with a growth rate of technological progress of g of 2 percent.
Consider what happens when g increases to 3 percent.
(a) What is the growth rate of output per worker before the change? What happens
to this growth rate in the long run?
(b) Perform a growth accounting exercise for the economy, decomposing the growth
rate in output per capita into components contributed by capital per capita growth
and technology growth. What is the contribution of the change in g to output
per capita growth according to this formula?
(c) In what sense is the growth accounting result in part b producing a misleading
picture of this experiment? Explain why this is the case.
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