The Solow model implies that continuous growth in productivity at a rate of one percent will result in continuous growth of output per worker at a rate of 1.43%.Thus,if at a point in time output per worker is 270 and productivity rises by one percent,the resulting level of output per worker is ________.
A)386
B)273
C)274
D)277

Question

Quizplus · Accepted Answer

According to the Solow model, the growth rate of output per worker is equal to the growth rate of productivity (1%) multiplied by the elasticity of output with respect to capital (0.35), which gives a value of 1.43% (1% x 0.35 = 0.0143). Therefore, if output per worker is initially 270, a one percent increase in productivity would result in a new output per worker level of 270 x 1.0143 = 274.

The Solow Model Implies That Continuous Growth in Productivity at a Rate