Question: Repeat exercise 5, but this time assume the production function is given by Y = AÌ K 3/4 L 1/4 . That is, assume the

Repeat exercise 5, but this time assume the production function is given by Y = AÌ… K^3/4L^1/4. That is, assume the exponent on capital is 3/4 rather than 1/3 so that the diminishing returns to capital are less. In part (d), be sure to compare the results here with those in exercise 5, where the capital exponent was 1/3. Why do you think the results are different? Is it reasonable to assume a capital share of 3/4 in the model?

data from exercise 5

In 2011 dollars Relative to the U.S. values (U.S. = 1) %3D (2) Per capita GDP (3) Capital per person (5) (6) Implied TFP (1) Capital (4) Per capita Predicted GDP Country y* to match data per person United States 141,841 1.000 1.000 51,958 1.000 1.000 Canada 128,667 43,376 France 162,207 37,360 Hong Kong 159,247 45,095 South Korea 120,472 34,961 Indonesia 41,044 53,821 45,039 9,797 Argentina Mexico 20,074 15,521 Kenya Ethiopia 4,686 2,971 1,505 3,227

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