Assume that an economy described by the Solow model is in a steady state with output and capital growing at 3 percent,labour growing at 1 percent,and technological progress growing at 2 percent.The capital share is 0.3.The growth-accounting equation indicates that the contributions to growth of capital,labour,and total factor productivity are:

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The growth rate of output is the sum of the contributions from capital, labor, and total factor productivity (TFP). The contribution of capital is the capital share (0.3) times the growth rate of capital (3%), which is 0.9%. The contribution of labor is the labor share (1 - capital share = 0.7) times the growth rate of labor (1%), which is 0.7%. The contribution of TFP is the growth rate of technological progress, which is 1.4% (since output grows at 3% and the sum of contributions from capital and labor is 1.6%, the remaining 1.4% is from TFP).

Assume That an Economy Described by the Solow Model Is