Suppose that in Country 1 the growth rates of multifactor productivity (a), capital (k), and labor (h) are 2.5, 3, and 1 percent per year, respectively, and that capital’s share of output (b) equals 0.25. Initially output per hour equals 40 in Country 1 and 10 in Country 2. (a) Calculate the labor productivity growth rate in Country 1. (b) Calculate output per hour in Country 1 at the end of ten, twenty, and thirty years. (c) Suppose that the labor productivity grows four times as fast in Country 2 as it does in Country 1 for the first ten years, three times as fast for the second ten years, and twice as fast for the third ten years. Calculate output per hour in Country 2 at the end of ten, twenty, and thirty years. (d) Calculate Country 2’s output per hour as a percentage of Country 1’s output per hour at the end of ten, twenty, and thirty years. Are these calculations consistent with the predictions of the Solow growth model?
Suppose that in Country 1 the growth rates of multifactor productivity (a), capital (k), and labor (h) are 2.5, 3, and 1 percent per year, respectively, and that capital’s share of output (b) equals 0.25. Initially output per hour equals 40 in Country 1 and 10 in Country 2. (a) Calculate the labor productivity growth rate in Country 1. (b) Calculate output per hour in Country 1 at the end of ten, twenty, and thirty years. (c) Suppose that the labor productivity grows four times as fast in Country 2 as it does in Country 1 for the first ten years, three times as fast for the second ten years, and twice as fast for the third ten years. Calculate output per hour in Country 2 at the end of ten, twenty, and thirty years. (d) Calculate Country 2’s output per hour as a percentage of Country 1’s output per hour at the end of ten, twenty, and thirty years. Are these calculations consistent with the predictions of the Solow growth model?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Suppose that in Country 1 the growth rates of multifactor productivity (a), capital (k), and labor (h) are 2.5, 3, and 1 percent per year, respectively, and that capital’s share of output (b) equals 0.25. Initially output per hour equals 40 in Country 1 and 10 in Country 2. (a) Calculate the labor productivity growth rate in Country 1. (b) Calculate output per hour in Country 1 at the end of ten, twenty, and thirty years. (c) Suppose that the labor productivity grows four times as fast in Country 2 as it does in Country 1 for the first ten years, three times as fast for the second ten years, and twice as fast for the third ten years. Calculate output per hour in Country 2 at the end of ten, twenty, and thirty years. (d) Calculate Country 2’s output per hour as a percentage of Country 1’s output per hour at the end of ten, twenty, and thirty years. Are these calculations consistent with the predictions of the Solow growth model?
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