Question
Suppose the labour force and (physical) capital stock are growing at a rate of 2.5% and 3% respectively, and the labour share of income is
Suppose the labour force and (physical) capital stock are growing at a rate of 2.5% and 3% respectively, and the labour share of income is 60%. In addition, the total factor productivity is presently constant. We would like to have a very long-run growth rate of real GDP of 3% that will be obtained by changing the growth rate of ONLY one of the following three - the labour force; the capital stock; or total factor productivity. Workers would find all three of these choices equally desirable. Explain your answer with the use of mathematics, economics, and words. (4 points) Note: All the growth rates are annual rates.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started