Answered: Suppose an economy’s production…

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter16: Economic Growth

Section: Chapter Questions

Problem 5E

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Question

Suppose an economy’s production function is Y = AK^αL^1−α. If the annual rate of economic growth is 3.5 per cent and labour and capital are both growing by 2 per cent annually, what contribution to growth is made by total factor productivity? You can assume that labour receives 75 per cent of the total income generated in this economy.

Definition Definition Increase in the amount of goods and services produced by a country in a given period of time compared to an earlier period. Economic growth is generally coupled with a rise in national income or the purchasing power of individuals. It is often measured in terms of the increase in a country's gross domestic product (GDP), or the overall monetary value of all the complete or final services and goods that a country can produce within its domestic boundaries in a specific period.

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