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(20 points) An economy initially has 1,000 units of physical capital per worker. Each year it increases the amount of physical capital per worker by
(20 points) An economy initially has 1,000 units of physical capital per worker. Each year it increases the amount of physical capital per worker by 5%. According to the aggregate production function for this economy, each 1% increase in physical capital per worker, holding human capital and technology constant, increases output per worker by 0.20%. Assume no inflation in this economy. a. After 3 years, what is the level of physical capital per worker in this economy? b. Suppose output per worker is initially $500. After 1 year, what does the estimated output per worker equal? c. Suppose that output per worker after year 1 is $525. Assuming that physical capital per worker increased by 5%, what does this imply about productivity growth in the economy in year 1? Explain. d. What are the potential sources of changes in productivity growth
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