1.4: Economic Growth Applications (6.1)

Question 1

production function

Answer 1

Y = AF (K,N)

Question 2

growth accounting equation

Answer 2

dY/Y = dA/A + Ak dK/K + An dN/N

Ak = elasticity of output wrt capital
An = elasticity of output wrt labor

Question 3

diminishing marginal productivity of capital

Answer 3

if capital stock grows, output will increase. however, because of diminishing marginal productivity of capital, the extra capital will be less productive than that used previously, so the increase in output will be less than 10%

DMPofCapital is the reason that the growth rate of capital, dK/K, is multiplied by less than the 1 in the growth accounting equation.

Question 4

dY/Y can be broken down into 3 parts

Answer 4

1. that resulting from productivity growth, dA/A
2. that resulting from increased capital inputs, aK, dK/K
3. that resulting from increased labor inputs, aN, dN/N