If the labor force growth rate was 1 percent per year, the capital stock depreciation rate was 3 percent per year, the saving rate was 15 percent per year, and growth rate of the efficiency of labor was 1 percent per year,
A) the capital-output ratio would be 5.
B) the capital-output ratio would be 3.
C) the capital-output ratio would be 4.
D) the capital-output ratio would be 2.

Question

Quizplus · Accepted Answer

The capital-output ratio can be determined using the Solow growth model formula: $ \frac{s}{n + g + \delta} $, where $ s $ is the saving rate, $ n $ is the labor force growth rate, $ g $ is the growth rate of the efficiency of labor, and $ \delta $ is the depreciation rate of capital. Plugging in the given values: $ \frac{0.15}{0.01 + 0.01 + 0.03} = 3 $.

If the Labor Force Growth Rate Was 1 Percent Per