The economy has grown by 4% per year over the past 30 years. During the same period, the labor force has grown by 1% per year and the quantity of physical capital has grown by 5% per year. Each 1% increase in physical capital per worker is estimated to increase productivity by 0.4%. Assume that human capital has not changed during the past 30 years. How much has technological progress contributed to productivity growth?

Question

Quizplus · Accepted Answer

The correct answer is A.The growth in productivity is equal to the growth in output minus the growth in inputs. In this case, the growth in output is 4% per year, the growth in labor force is 1% per year, and the growth in physical capital is 5% per year. So, the growth in productivity is 4% - 1% - 5% * 0.4% = 1.4%.

The Economy Has Grown by 4% Per Year Over the Past