Answer to Question #80297 in Macroeconomics for craig smith

Question

2. In a simple scenario with only two factors of production, suppose that capital’s share of income is .4 and labor’s share is .6 and the annual growth rates of capital and labor are 6 and 2 percent, respectively. Assume there is no technical change.
a. At what rate does output grow?
b. How long will it take for output to double?
c. Now suppose that technology grows at a rate of 2 percent. Recalculate your answers to parts a and b.

Answer 1

a. The rate of output change:
0.4*6 + 0.6*2 = 3.6%.
b. To determine this term, there is not enough data in this question.
absent indicator / 3.6 (indicator from "a" ) = indicator of years.
c. With new rate:
2 + 3.6 = 5.6%.