Question
Suppose we can use a Cobb-Douglas production function to estimate real national output or real GDP ( Y ) of the US economy as ,
Suppose we can use a Cobb-Douglas production function to estimate real national output or real GDP (Y) of the US economy as , where t indicates the year. Here K indicates total capital input and L is total labor. We have = 20% or 0.20. The coefficient of A measures total factor of productivity (TFP). As a benchmark, the value of A = 2 in 2022. Thus, production function of real GDP in 2022 can be expressed as . We assume is constant (has the same value = 0.2) in this question. In 2023, we know that A increases to 2.05 and total capital (K) is about 5% higher than 2022 level (1.05 K as 2022). If total labor input (L) remains the same, then how much real GDP has increased from 2022 to 2023?
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