Go to the St. Louis Federal Reserve FRED database, and find data on real GDP (GDPCA), the labor force (CLF16OV), and a measure of the capital stock, real consumption of fixed capital (A262RX1A020NBEA). Download all of the data onto a spreadsheet; for (CLF16OV), change the frequency setting to “annual” before downloading. In the spreadsheet, convert the data into real GDP per worker and capital per worker by dividing (GDPCA) and (A262RX1A020NBEA) by (CLF16OV) for each year. Note that this conversion will be represented as $ millions of output and capital per worker.

a) For each year from 1960 to the most current year available, calculate k^0.3 and use this value, along with the transformed real GDP per worker series, to calculate a measure of total factor productivity.

b) For each decade (1960–1969, 1970–1979, 1980–1989, 1990–1999, 2000–2009, 2010 on), calculate the average growth rate per year from the beginning of the decade to the end of the decade for total factor productivity calculated in part (a), and capital per worker. To do this, take the value at the end of the time period and subtract it from the value at the beginning of the time period, and then divide by the value at the beginning of the time period. Then divide by the number of years in the period (10 for each full decade).

c) Use the growth accounting equation to calculate the average growth in output per worker for each decade, and then calculate the average across all decades for g_k, gA, 0.3g_k, and g_y. Which source of growth seems to be more important, total factor productivity or capital per worker? Briefly explain.