If capital grows at 3 percent per year and labour grows at 1 percent per year,and capital's share is 1/3 while labour's share is 2/3,if there is no technological progress and the neoclassical assumptions hold,the growth rate of output will be:

Question

Quizplus · Accepted Answer

According to the neoclassical growth model, the growth rate of output (Y) is given by the formula Y = A*K^(1/3)*L^(2/3), where A is the level of technology, K is the level of capital, and L is the level of labor. Holding technology constant, we can use the law of motion for capital and labor to derive the growth rate of output as follows:

dK/K = 3% per year (capital grows at 3% per year)
dL/L = 1% per year (labor grows at 1% per year)

Using the formula for the weighted average of growth rates, we get:

dY/Y = (1/3)*(dK/K) + (2/3)*(dL/L)
= (1/3)*(3%) + (2/3)*(1%)
= 1 2/3% per year.

Therefore, the correct answer is B) 1 2/3 percent per year.

If Capital Grows at 3 Percent Per Year and Labour