Question

Suppose the production function of a country's economy is in the form of a Cobb Douglas production function, where the share of labour is 0.7 and the share of capital is 0.3 . If the growth rate of the capital stock is 1%, the growth rate of labour is 2% and total factor productivity is 1.2%, what is the growth rate of real output? This is a multi answer question. You can select one or more options as the answer.

A. 3%
B. 2.9%
C. 1.2%
D. 1

Answer 1

The growth rate of real output, based on the given Cobb Douglas production function parameters, is calculated to be 2.9%, which matches answer option B.

Step-by-step explanation:

Given the Cobb Douglas production function parameters for an economy, where labor's share is 0.7, capital's share is 0.3, the growth rate of capital stock is 1%, the growth rate of labor is 2%, and total factor productivity growth is 1.2%, we can calculate the growth rate of real output.

To find the growth rate of real output, use the formula:
growth rate of output = (share of labor x growth rate of labor) + (share of capital x growth rate of capital) + growth rate of total factor productivity.

Plugging in the numbers we have:
0.7(2%) + 0.3(1%) + 1.2% = 1.4% + 0.3% + 1.2% = 2.9%

Therefore, the growth rate of real output is 2.9%, which corresponds to answer option B.