An economy initially has 200 units of physical capital per worker.Each year,it increases the amount of physical capital by 10%.According to the aggregate production function for this economy,each 1% increase in physical capital per worker,holding human capital and technology constant,increases output per worker by 0.25%.In 3 years' time,what is the level of physical capital per worker in this economy?

Question

Quizplus · Accepted Answer

In the first year, the economy will have 220 units of physical capital per worker as 200 units will increase by 10%. In the second year, it will have 242 units (220 units increased by 10%). In the third year, it will have 266.2 units (242 units increased by 10%). 
So, the answer is C.

An Economy Initially Has 200 Units of Physical Capital Per