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%.If there is no inflation and output per worker is initially $1 000,what does the estimated output per worker equal after 1 year?

Question

Quizplus · Accepted Answer

The physical capital per worker increases by 10%, leading to a 2.5% increase in output per worker (10% * 0.25%). Therefore, the new output per worker is $1,000 * 1.025 = $1,025.

An Economy Initially Has 200 Units of Physical Capital Per