Consider an economy in which the labour force grows by 2.7 percent per annum, physical capital grows by 4 percent per annum and human capital grows by 1.8 percent per annum. Suppose 45 percent of national income goes to labour and 40 percent to capital. Use a constant returns to scale production function to answer the following growth accounting questions: (a) If the Solow residual were zero what rate of growth would the economy achieve? (b) The country's actual rate of growth has been 4.5 percent per annum, which is faster than the growth rate generated by the accumulation of capital and labour stocks. Calculate the value of the residual.
Consider an economy in which the labour force grows by 2.7 percent per annum, physical capital grows by 4 percent per annum and human capital grows by 1.8 percent per annum. Suppose 45 percent of national income goes to labour and 40 percent to capital. Use a constant returns to scale production function to answer the following growth accounting questions: (a) If the Solow residual were zero what rate of growth would the economy achieve? (b) The country's actual rate of growth has been 4.5 percent per annum, which is faster than the growth rate generated by the accumulation of capital and labour stocks. Calculate the value of the residual.
Economics (MindTap Course List)
13th Edition
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Roger A. Arnold
Chapter17: Economic Growth: Resources, Technology, Ideas And Institutions
Section: Chapter Questions
Problem 1QP
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Consider an economy in which the labour force grows by 2.7 percent per annum, physical capital grows by 4 percent per annum and human capital grows by 1.8 percent per annum. Suppose 45 percent of
(a) If the Solow residual were zero what rate of growth would the economy achieve?
(b) The country's actual rate of growth has been 4.5 percent per annum, which is faster than the growth rate generated by the accumulation of capital and labour stocks. Calculate the value of the residual.
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