Question

Macroeconomics Workshop-2 Problem 1 Tables 1, 2, and 3 present some data on three hypothetical economies. Complete the tables by figuring the measured productivity of labor and the rate of output growth. What do the data tell you about the causes of economic growth? (Hint: How fast are Land K growing?) Table 1 Period Capital intensity Productivity Growth rate of L Growth rate of K Growth rate of output 10523065 4506 1105 3095 4674 1160 3126 4842 1218 3157 5019 Table 2 Period Capital intensity Productivity Growth rate of L Growth rate of K Growth rate of output 1052 1062 1073 1084 3065 4506 3371 4683 3709 4866 40795055 Table 3 Period Productivity Capital intensity Growth rate of L Growth rate of K Growth rate of output 1052 3065 4506 10623095 4731 1073 3126 4967 1084 3157 5216 14

Answer 1

Answer:

Table-1 shows that output is fluctuating (i.e. economic growth is not stable) because of slow growth of L and K along with falling capital intensity and decreasing productivity.

Table-1 Capital intensity Productivity (KЛ) Growth Growth rate Growth Period L К Y (Y/L) of Output rate of L rate of K 1 1052 3065 4506 2.91 4.28 4674 2,80 3095 4.23 5.04 2 1105 0.98 3.73 3 1160 3126 4842 2.69 4.17 4.98 1.00 3.59 4 1218 3157 5019 2.59 4.12 5.00 0.99 3.66

Table-2 shows that output is decreasing (i.e. economic growth is decreasing) because of slow growth of L and declining growth rate of K.

Table-2 Capital intensity Productivity (K/L) Growth Growth rate Growth Period L K Y of Output (Y/L) rate of K rate of L 1 1052 3065 4506 2.91 4.28 1062 9.98 3.93 3371 4683 3.17 4.41 0.95 4866 3.46 4.53 3.91 3 1073 3709 1.04 10.03 4079 4.66 3.88 4 1084 5055 3.76 1.03 9.98

Table-3 shows that output is rising (i.e. economic growth is increasing) because of increasing productivity and almost same growth rates of both L and K.

Table-3 Capital intensity Productivity (K/L) Growth rate of Output Growth Growth Period L K (Y/L) rate of L rate of K 1 1052 3065 4506 2.91 4.28 1062 4731 0.98 2 3095 2.91 4.45 0.95 4.99 2.91 4.63 3 1073 3126 4967 1.04 1.00 4.99 4.81 5.01 4 1084 3157 5216 2.91 1.03 0.99