Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Hi, I have failed to understand by the A has no growth rate? A stands for real asset holdings? and I did not quote understand

Hi, I have failed to understand by the A has no growth rate? A stands for real asset holdings? and I did not quote understand the calculations, please explain, thanks !

image text in transcribed
* M6. The aggregate production function for a given economy is Q = K" (AL). Suppose a = 0.3 and B = 0.7. If capital and labour grow continuously at 3% and 2% respectively, what growth rate of output should be expected? Q is a product of 3 elements Ka, LP, and AB = its growth rate is equal to the sum of the 3 growth rates of the elements. A is constant, therefore its growth rate is 0. The growth rate of K is equal to a x the growth rate of K. The growth rate of LP is B x the growth rate of L. Thus, the growth rate of Q is 0.3 . 3% + 0.7 . 2% = 2.3%. To see is slightly more formally notice that the growth rate of Q can be found as go = In(Q)' = In(Ka (AL) B)' = (InKa + In AB + InLB) = (BInA + alnK + BinL)' = Bin(A)' + a In(K)' + B In(L)' = 0 + agx + Bgz = 0.3 . 3% + 0.7 . 2% = 2.3%. Where gx and gz are the growth rates of capital and labour respectively

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Accounting A User Perspective

Authors: Robert E Hoskin, Maureen R Fizzell, Donald C Cherry

6th Canadian Edition

470676604, 978-0470676608

Students also viewed these Economics questions