Over the past year,output grew 6%,capital grew 2%,and labour grew 4%.If the elasticities of output with respect to capital and labour are 0.3 and 0.7 respectively,how much did productivity grow?

Question

Quizplus · Accepted Answer

The correct answer is B.The elasticity of output with respect to capital is 0.3, and the elasticity of output with respect to labor is 0.7. The growth rate of capital is 2%, and the growth rate of labor is 4%. Therefore, the contribution of capital to output growth is 0.3 * 2% = 0.6%, and the contribution of labor to output growth is 0.7 * 4% = 2.8%. The total growth rate of output is 6%, so the growth rate of productivity is 6% - 0.6% - 2.8% = 2.6%.

Over the Past Year,output Grew 6%,capital Grew 2%,and Labour Grew