Consider two economies, say Finland and Poland, both of which have an aggregate production function of...

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Consider two economies, say Finland and Poland, both of which have an aggregate production function of the form: 1- Y = AKa N-a where a = 0.3. Assume there is no capital depreciation (that is d = :0). Suppose that the growth rates of total factor productivity are gA, where i = F, P (F refers to Finland, and P refers to Poland) and the growth rates of labour are g'N. Therefore: A+1 = (1+g)A Ni +1 = (1 + g) Ni K N (a) Let gy and gk denote the growth rate of output and capital, respectively. Derive the growth accounting equations for Finland and Poland. N (b) According to statisticians, the population in both countries is not changing (that is g = 0), and the growth rate in aggregate capital stocks is the same in Finland and Poland. Also, the TFP growth rates are g = 0.16, g = 0.07. What is the difference in the output growth rates of the two countries? (c) Now suppose you know that: 1) both the growth rate of the capital stock (g) and the labour force (g) have the same value (g'k = g' = g = 0.10) in the two countries, and 2) the growth rates of output have opposite values, that is g = -gy. What is the average TFP growth rate across the two countries? Consider two economies, say Finland and Poland, both of which have an aggregate production function of the form: 1- Y = AKa N-a where a = 0.3. Assume there is no capital depreciation (that is d = :0). Suppose that the growth rates of total factor productivity are gA, where i = F, P (F refers to Finland, and P refers to Poland) and the growth rates of labour are g'N. Therefore: A+1 = (1+g)A Ni +1 = (1 + g) Ni K N (a) Let gy and gk denote the growth rate of output and capital, respectively. Derive the growth accounting equations for Finland and Poland. N (b) According to statisticians, the population in both countries is not changing (that is g = 0), and the growth rate in aggregate capital stocks is the same in Finland and Poland. Also, the TFP growth rates are g = 0.16, g = 0.07. What is the difference in the output growth rates of the two countries? (c) Now suppose you know that: 1) both the growth rate of the capital stock (g) and the labour force (g) have the same value (g'k = g' = g = 0.10) in the two countries, and 2) the growth rates of output have opposite values, that is g = -gy. What is the average TFP growth rate across the two countries?

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Answer a The growth accounting equations for Finland and Poland can be derived as follows For Finlan... View the full answer