1. Consider the following production functions for countries A and B.

Country A: Y = 2000K^0.7L^0.3

Country B: Y = 2000K^0.3L^0.7

During 2020, the growth rate of labour was 1 % in country A and 2 % in country B whilst the growth rate of capital is 10 % in both country A and country B. During this year country A's technological (Solow residual) growth was 3 % in country A and 6 % in country B.

a.Compute the output growth in 2020 for both of the countries. What is the contribution of productivity growth to total output growth in these two countries (in percentage terms)?

b.Doubling the factors of production leads to an increase in Country A and a decrease in Country B. Do you agree? Why or why not?

c.What structural policies would you suggest for the countries to achieve higher growth? Why?