Using the growth accounting equation, if the growth rate of technology is 3%, the growth of labor is 2% and the growth of capital is 1% then if α=0.25 then growth of output can be estimated to be:

Question

Quizplus · Accepted Answer

The Solow Growth model's growth accounting equation states that the growth of output can be calculated by:

Growth of output = growth of technology + α*(growth of capital) + (1-α)*(growth of labor)

Given,
growth of technology = 3%
growth of labor = 2%
growth of capital = 1%
α=0.25

Putting the values in the equation, we get:

Growth of output = 3% + 0.25*(1%) + 0.75*(2%) = 3% + 0.25% + 1.5% = 4.75%

Therefore, the growth of output can be estimated to be 4.75%, which is closest to option D (4.75%).

Using the Growth Accounting Equation, If the Growth Rate of Technology