Consider an economy with an aggregate wage bill of 200 billion dollars and an aggregate GDP of 400 billion. Theaggregate GDP growth rate for this economy over the last 10 years was 8 percent (that is ? Y/ Y=0.08) and the growthrates of capital and labor were 5 percent (? K/ K=0.05) and 5 percent (? L/L=0.05) respectively. (a) What are the “capital share (?)” and the “labor share (1-?)”? (b) What was the growth rate of “A” for this country? (c) Imagine now that aggregate GDP is the SAME, but the wage bill is 300 billion. What is the growth rate ofproductivity now if the growth rates of GDP, capital and labor are still .08, 0.05 and 0.05 respectively? Explainintuitively why your answer is or is not different from (b). (d) Repeat part (b) under the assumption that ? K/K=0.10. Explain intuitively why your answer is or is not differentfrom (b). I understand a, but trying to wrap my head around b, c and d
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