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Assume a standard Cobb-Douglas production function that takes the form: Y = AK L-a. We will use this production for two countries, US and
Assume a standard Cobb-Douglas production function that takes the form: Y = AK L-a. We will use this production for two countries, US and Brazil. In the data, capital per person in Brazil is 0.202 times that of the US. Let capital share be 1/3. Calculate the output per person in Brazil relative to the US if Brazil and US had same value of A? b. Now, lets say that the observed per-capita GDP of Brazil is 0.252 times that of the US. What is the implied value of A for Brazil (relative to US) if you wanted to fit the production function model correctly c) Give two examples that could explain differences in A between US and Brazil? d) In Chapter 2, we study the use of various ways to construct real GDP. Explain briefly why do we prefer to use chain-weighted index?
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