1. In detail derive the growth accounting equation for production function with labour-augmenting technological progress = (;). Describe each step. (1.5p)

2. Suppose that the economy described by the Solow model with production function with labour-augmenting technological progress (as above) and capital share of output = 0.3 is in equilibrium. Further suppose that in year one the labour input was 125, while in the second year it was 130 and that the technological progress is g = 0.02.

(a) What is the population, total output and total capital growth rate? (0.3p)

(b) What is the output in year 2, if in the year one it was ₁ = 300? (0.1p)

(c) What was the capital in year 1, if in the year 2 we observe ₂ = 159? (0.1p)

(d) Using your derived growth accounting equation, divide the output growth into three sources - capital, labor, and total factor productivity. (0.4p)

(e) What is the growth rate of A, i.e. / =? (0.1p)