Consider the following hypothetical economy. The production function is Cobb-Douglas and labor's share of income is...

Consider the following hypothetical economy. The production function is Cobb-Douglas and labor's share of income is 70%. All values are continuously compounded, annualized growth rates, in percent. Growth in real wages: 2.0

Growth in capital stock: 4.0

Growth in real rental rate of capital: 1.0

a. Using the information provided in the table above, your best estimate of growth in TFP is A. 1.4% B. 2.9% C. Not enough information to answer D. None of the above

b. Consider a small open economy. If national savings is 90, the trade surplus is 5 and the country's investment curve is described by i(r) = 110 * 500 r, then the world interest rate must be A. 5% B. 2% C. 1% D. Cannot tell

Solutions

Expert Solution

Part a) correct answer is (c) Not enough information to answer

to estimate growth in TFP (total factor productivity), we require growth in labor, growth in capital, growth in ouput, share of labor in output and share of capital in output. Out of these variables, we donot have growth in output and growth in labor

Total factor productivity captures anything that changes the relation between measured inputs and measured output.

Part b) correct answer is (a) 5%

world interest rate is 5%

Rahul Sunny answered 1 year ago

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