In Techland, from 1980 to 2010, holding technology and human capital fixed, increasing physical capital per worker from $25,000 to $100,000 would have led to a doubling of real GDP per worker, from $40,000 to $80,000. However, not only did physical capital per worker increase from $25,000 to $100,000, but technological progress shifted the productivity curve upward so that real GDP per worker actually increased from $40,000 to $320,000. What share of the annual growth rate of real GDP per capita was attributable to increasing physical capital per worker?

Question

Business

Linda Ryan

6 September, 15:40

In Techland, from 1980 to 2010, holding technology and human capital fixed, increasing physical capital per worker from $25,000 to $100,000 would have led to a doubling of real GDP per worker, from $40,000 to $80,000. However, not only did physical capital per worker increase from $25,000 to $100,000, but technological progress shifted the productivity curve upward so that real GDP per worker actually increased from $40,000 to $320,000. What share of the annual growth rate of real GDP per capita was attributable to increasing physical capital per worker?

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Boston Hardy · Answer 1

The answer is: $40,000 can be attributed to increase in physical capital per worker (one seventh of the total increase)

Explanation:

If only physical capital per worker had increased, the real GDP per worker of Techland would have increased by 100% in thirty years (from $40,000 to $80,000). But since technological progresses were also made, the real GDP per worker increased 700% (from $40,000 to $320,000). Out of the total increase in real GDP per worker ($280,000);

$40,000 can be attributed to increase in physical capital per worker (one seventh of the total increase) $240,000 can be attributed to technological progress (six sevenths of the total increase)