Using the growth accounting equation, if the growth rate of output is 5 percent, the growth rate of labor is 2 percent, the growth rate of capital is 2 percent, and α = 0.50, then the growth rate of technology can be estimated to be:

Question

Quizplus · Accepted Answer

According to the growth accounting equation:

Growth rate of output = α x (growth rate of capital) + (1-α) x (growth rate of labor) + (growth rate of technology)

Given values are:

Growth rate of output = 5%
Growth rate of labor = 2%
Growth rate of capital = 2%
α = 0.50

Substituting the values in the equation, we get:

5% = 0.50 x 2% + 0.50 x 2% + growth rate of technology

Simplifying, we get:

growth rate of technology = 5% - 1% = 4%

Therefore, the estimated growth rate of technology is 4%. The closest choice is C, which is the correct answer.

Using the Growth Accounting Equation, If the Growth Rate of Output