Question

Find the elasticity of output per unit of effective labor on the balanced growth path, y∗, with respect to the rate of population growth, n. If αK(k∗) = 13, g = 2%, and δ = 3%, by about how much does a fall in n from 2 percent to 1 percent raise y∗?

Answer 1

The elasticity of output per unit of effective labor on the balanced growth path with respect to the rate of population growth is approximately 12.95.

Step-by-step explanation:

The elasticity of output per unit of effective labor on the balanced growth path, y∗, with respect to the rate of population growth, n, can be calculated using the formula:

E = αK(k∗) - (g + δ)

Given that αK(k∗) = 13, g = 2%, and δ = 3%, we can substitute the values to calculate the elasticity:

E = 13 - (0.02 + 0.03) = 13 - 0.05 = 12.95

Therefore, the elasticity of output per unit of effective labor on the balanced growth path with respect to the rate of population growth is approximately 12.95.