Suppose that the economy grows by 4 percent, total factor productivity grows by 3 percent, and the labor force increases by 6 percent.If labor and capital are the only inputs and labor contributes 40 percent to GDP, then the stock of capital must have _____.

Question

Quizplus · Accepted Answer

Using the Solow growth model, the growth rate of output is the sum of the growth rates of total factor productivity, labor, and capital, weighted by their respective contributions to GDP. Given the growth rates and contributions, the capital stock must have fallen by 2.33% to satisfy the equation.

Suppose That the Economy Grows by 4 Percent, Total Factor