GrowthRates ECO 3203 - A similar rule applies to a variable...

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Regarding Problem #3 for Homework #1 This was the hint I gave you: Hint: there is a mathematical rule that states the following relationship between the production function and the growth rate of the variables in the production function: Y = AK α L 1 growthY = growthA + growthK + (1 ) growthL . This rule applies to any variable that is the product of two or more other variables. For example, if Z=XY then growth of Z = growth of X + growth of Y.
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Unformatted text preview: A similar rule applies to a variable that is the quotient of two other variables. For example, if Z=X/Y then growth of Z = growth of X – growth of Y. Regarding the production function example, suppose alpha is 0.5: • If A grows at 5% then all else the same Y grows at 5%. • If L grows at 5% then all else the same Y grows at 2.5%. • If K grows at 5% then all else the same Y grows at 2.5%....
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This note was uploaded on 11/08/2011 for the course ECO 3203 taught by Professor Yang during the Fall '10 term at University of Central Florida.

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