From one year to the next, a country's output rose from 4000 to 4500, its capital stock rose from 10,000 to 12,000, and its labor force declined from 2000 to 1750. Suppose aK = 0.3 and aN= 0.7

(a) How much did capital contribute to economic growth over the year?
(b) How much did labor contribute to economic growth over the year?
(c) How much did productivity contribute to economic growth over the year?


(a) aK ?K/K = 0.3(2000 / 10,000 ) = 6%.
(b) aN ?N/N = 0.7 (-250 / 2000 ) = -8.75%.
(c) ?Y/Y = 500/4000 = 12.5%.
?A/A = ?Y/Y - aK?K/K - aN ?N/N
= 12.5% - 6% - (-8.75%)
= 15.25%.

Economics

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