In Lotusland, real GDP per hour of labor grows at 6 percent a year and capital per hour of labor increases by 6 percent a year. The one- third rule tells us that technological change increased real GDP per hour of labor by .

Question

Quizplus · Accepted Answer

The one-third rule states that a 1 percent increase in capital per hour of labor leads to a one-third percent increase in output per hour of labor. Since capital per hour of labor increases by 6 percent a year, this implies an increase in output per hour of labor by 6/3 = 2 percent a year due to capital accumulation alone. The remaining increase of 6 percent in real GDP per hour of labor must be due to technological progress. Therefore, using the one-third rule, technological change increased real GDP per hour of labor by 4 percent a year (6 percent - 2 percent).

In Lotusland, Real GDP Per Hour of Labor Grows at 6