GDP has grown in a country at 3% per year for the last 20 years. The labor force has grown at 2% per year and the quantity of physical capital has grown at 4% per year. A 1% increase in average physical capital per worker (other things equal) raises productivity by 0.3%. Average education has not changed. How much has growing physical capital per worker contributed to productivity growth in this country

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17 December, 05:26

GDP has grown in a country at 3% per year for the last 20 years. The labor force has grown at 2% per year and the quantity of physical capital has grown at 4% per year. A 1% increase in average physical capital per worker (other things equal) raises productivity by 0.3%. Average education has not changed. How much has growing physical capital per worker contributed to productivity growth in this country

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Shea Crane · Answer 1

0.6 or 60%

Explanation:

The country's productivity has grown at = 3% - 2% = 1%

Physical capital per worker has grown at = 4% - 2% = 2%

How much has growing physical capital per worker contributed to productivity growth in this country?

productivity increase per 1% of increase in physical capital per worker x growth rate of physical capital per worker = 0.3 x 2% = 0.6%

0.6% / country productivity growth = 0.6% / 1% = 0.6 or 60%