If the growth rate of technology is 2 percent over a given period of time and there has been no change in the amount of capital per hour worked, then, based on Solow's growth accounting formula, the growth rate of real GDP per hour of work will be
A)1.67 percent.
B)1 percent.
C)1.67 percent
D)3 percent.
E)2 percent.

Question

Quizplus · Accepted Answer

According to Solow's growth accounting formula, the growth rate of real GDP per hour of work can be expressed as the sum of the growth rate of technology and the product of the elasticity of output with respect to capital, the growth rate of capital per hour worked, and the share of capital in output. As there has been no change in the amount of capital per hour worked, the product of elasticity of output with respect to capital, growth rate of capital per hour worked, and share of capital in output will be zero. Therefore, the growth rate of real GDP per hour of work will be equal to the growth rate of technology, which is 2 percent in this case. Hence, the correct answer is E) 2 percent.

If the Growth Rate of Technology Is 2 Percent Over