Question

Calculate the implied growth rate of technology in each scenario in the table below. Assume labor’s share of output is 70% and capital’s share of output is 30%.

Scenario	Growth Rate of Output (%)	Growth Rate of Labor (%)	Growth Rate of Capital (%)	Implied Growth Rate of Technology
A	3.0	2	2
B	4.2	3	3
C	3.0	1	5
D	4.2	1	4

Instructions:  Enter numbers rounded to one decimal place in each box.

Answer 1

implied growth rate of technology = growth rate of output - (0.70) *(growth rate of labour) - (0.30) *(growth rate of capital)

scenario	growth rate of output	growth rate of labour	growth rate of capital	implied growth rate of technology
A	3.0	2	2	1.0
B	4.2	3	3	1.2
C	3.0	1	5	0.80
D	4.2	1	4	2.3

note:

scenario A = 3 - (0.70)*(2) - (0.30)*(2)

=>3 - 1.4-0.6

=>3-2

=>1

scenario B = 4.2 - (0.70)*(3) - (0.30)*(3)

=>4.2-2.1-0.9

=>4.2- 3.0

=>1.2

Scenario C = 3.0-(0.70) *(1) - (0.30)*(5)

=>3.0 - 0.70 - 1.50

=>0.80

Scenario D = 4.2 - (0.70)*(1) - (0.30)*(4)

=>4.2 - 0.70 - 1.2

=>4.2 - 1.9

=>2.3