Use the information below to answer the following questions: (1) the rate of depreciation is 12% per year, (2) the population growth rate is 2% per year, and (3) the growth rate of technology is 3% per year.Refer to the information above. Which of the following represents the steady-state growth rate of output per worker in this economy?
Question
Use the information below to answer the following questions: (1) the rate of depreciation is 12% per year, (2) the population growth rate is 2% per year, and (3) the growth rate of technology is 3% per year.Refer to the information above. Which of the following represents the steady-state growth rate of output per worker in this economy?
Solution
The steady-state growth rate of output per worker in this economy can be calculated by adding the growth rate of technology and the population growth rate, then subtracting the rate of depreciation.
Here's how you do it:
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Identify the given rates:
- Depreciation rate (d) = 12% or 0.12
- Population growth rate (n) = 2% or 0.02
- Technology growth rate (g) = 3% or 0.03
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Add the growth rate of technology (g) and the population growth rate (n):
- g + n = 0.03 + 0.02 = 0.05 or 5%
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Subtract the rate of depreciation (d) from the sum of g and n:
- (g + n) - d = 0.05 - 0.12 = -0.07 or -7%
Therefore, the steady-state growth rate of output per worker in this economy is -7%. This negative growth rate suggests that the output per worker is decreasing in this economy.
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