Question: Suppose the production function for aggregate output in the United States is the same as in India, Y = AKL1-, where A is a total

Suppose the production function for aggregate output in the United States is the same as in India, Y = AKαL1-α, where A is a total productivity factor, K is the capital stock, and L is the supply of labor. From Table 11-2, calculate the ratio of per capita incomes Y>L in India and the United States in 2010. Use this information to figure out the ratio of capital's marginal product in India and the U.S. (The marginal product of capital is given by αAKα-1L1-α.) Relate the answer to the Lucas puzzle of capital flows from rich to poor. How much would A have to differ between India and the U.S. to make the marginal product of capital the same in the two countries?

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From the given table the ratio of per capita income can be calculated as below PC Income of US in 20... View full answer

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