Given the production function Y = A if output grows by five percent, t

Given the production function Y = A if output grows by five percent, the capital input grows by five percent, and the labor input grows by two percent, calculate the Solow residual.

Calculate the growth rates of output per worker and capital per worker.

ANSWER

The Solow residual = 0.05 – 0.3 × 0.05 – 0.7 × 0.02 = 0.021. The growth rate of output per worker is 0.05 – 0.02 = 0.03, which is also the growth rate of capital per worker.