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the Solow model with technological progress, we have been assuming that the production function does not change over time. We have considered the production function:
the Solow model with technological progress, we have been assuming that the production function does not change over time. We have considered the production function: Y = AKaLl'\" where A is a measure of current level of the technology called total factor productivity. Output increases because of increase in capital, labor and total factor productivity. The growth equation for the above production function can be written as: T=37 T If we rearrange the above equation then we get: M _ AY AK (1 _ 0!) AL A7_a?_ T % is the change in the output that cannot be explained by changes in inputs. This is also called as the Solow Residual some times. This measure is not directly observable, hence we have to calculate it using the above equation. Use Bureau of Economics Analysis (BEA): or FRED database research to get the data for output, investment (or capital) and labor (population). A?Y is the growth in the real output and ATK is the growth in the investment or capital. Answer the following questions: (a) Use the annual data (1960-2019) for U.S. and compute the Solow residual (% ) and plot it on excel sheet. You can assume a: value as 0.3 for computation purposes. (b) Now plot the growth in output for U.S. A7}; and Solow Residual (% ) on same graph and explain. (c) How do you interpret the Solow Residual
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