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Scenario: Capital
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%.
-(Scenario: Capital) Look at the scenario Capital. If there is no inflation and output per worker is initially $1,000, what does the estimated output per worker equal after one year?

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Scenario: Capital
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%.
-(Scenario: Capital) Look at the scenario Capital. If there is no inflation and output per worker is initially $1,000, what does the estimated output per worker equal after one year?

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.

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