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Scenario: Productivity
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.
-(Scenario: Productivity) Look at the scenario Productivity. How much has technological progress contributed to productivity growth?

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Quizplus · Accepted Answer

Technological progress is the only factor that can explain the remaining productivity growth after accounting for the contributions of physical capital and labor. The growth rate of productivity is 4% per year, the growth rate of physical capital is 5% per year, and the growth rate of labor is 1% per year. The contribution of physical capital to productivity growth is 5% * 0.4% = 2% per year. The contribution of labor to productivity growth is 1% per year. Therefore, the contribution of technological progress to productivity growth is 4% - 2% - 1% = 1% per year.

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