1.  

Consider an economy in which the real volume of production has increased during the past years at an average rate of 3% per year. Over the same period, the capital stock has increased at an average rate of 396 per year as well. Employment has only increased at an average rate of 1% per year. Using Solow's method of growth accounting, one would find that total factor productivity has increased over this period on average by 1.2% per year. Based on this information, determine the implicit shares of capital income and labor income in the national income and explain why these shares are needed to make this computation.