Over the past year,productivity grew 2%,capital grew 1%,and labor grew 1%.If the elasticities of output with respect to capital and labor are 0.2 and 0.8,respectively,how much did output grow?
A)1%
B)2%
C)3%
D)4%

Question

Quizplus · Accepted Answer

Using the formula for the percentage change in output, we have:

% change in output = % change in productivity + (elasticity of output with respect to capital * % change in capital) + (elasticity of output with respect to labor * % change in labor)

% change in output = 2% + (0.2 * 1%) + (0.8 * 1%)

% change in output = 3%

Thus, output grew by 3%. Therefore, option C is the best choice.

Over the Past Year,productivity Grew 2%,capital Grew 1%,and Labor Grew