Suppose that capital per hour of labor grew by 9 percent while GDP per hour of labor grew by 4 percent. Then the contribution of technology to growth in GDP per hour of labor is

Question

Quizplus · Accepted Answer

The Solow growth model states that GDP per hour of labor growth is affected by three factors: capital per hour of labor (K/L), labor force growth (N), and technology (A). The formula for GDP per hour of labor growth is written as follows:

% change in GDP per hour of labor = % change in technology + 1/3(% change in K/L) + 2/3(% change in N)

Given that K/L grew by 9% and GDP per hour of labor grew by 4%, we can solve for the contribution of technology:

4% = % change in technology + 1/3(9%) + 2/3(0%)

% change in technology = 1%

Therefore, the correct answer is D) 1 percent.

Suppose That Capital Per Hour of Labor Grew by 9