PSLecture5 - Problem Set for Lecture 5: The Vital...

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Problem Set for Lecture 5: The Vital Importance of AchievingProductivity Growth for a Market Economy [October 13, 2009] Note: The questions which are identified with an T may be used for tutorials and test questions. T5.1 “Erin reviews the basic growth equation whereby the rate of increase in output is completely generated by the contribution of labour [growth rate of person hours times the share of factor income to labour] plus the contribution of capital [growth rate of capital formation times the share of factor income to capital]. Referring to Solow’s work for the American industrial sector between 1909 and 1949, the following input was established: > labour input growth rate of 1.5% per annum; > capital input growth rate of 3.0% per annum; > the weight allocated to labour of 75% and the weight allocated to capital of 25%. Given this information, Erin concludes that the predicted that the rate of growth of output in the American manufacturing sector would be approximately 1.9% per annum.” T5.2 “Egan is astounded when he receives the expected rate of growth of real output for the American manufacturing sector between 1909 and 1949 of 1.9%. Egan reviews the Solow analysis and exclaims that the actual rate of growth of real output in the American manufacturing sector for the prescribed interval was 3.5%. Egan shouts: ‘Damn these economists: something is very wrong. The analysis is missing the contribution to output growth of 1.6% percentage points.’” T5.3 “Egan’s friend, Elizabeth has the answer. Egan, you have found the answer to the magnitude of total factor productivity [TFP], which Moses Abramovitz has termed ‘our degree of ignorance’. Given the Solow data above, the rate of technological change [Solow’s term] accounts
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This note was uploaded on 12/22/2010 for the course ECO ECO105 taught by Professor Hare during the Spring '08 term at University of Toronto- Toronto.

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PSLecture5 - Problem Set for Lecture 5: The Vital...

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