Explanation:
Using the growth accounting equation:
GDP Growth = Growth in TFP + (Capital Share × Growth in Capital) + (Labor Share × Growth in Labor)
Given:
Calculation: GDP Growth = 1.25% + (47.00% × 3.25%) + (53.00% × -1.70%)
= 1.25% + (0.47 × 3.25%) + (0.53 × -1.70%)
= 1.25% + 1.5275% + (-0.901%)
= 1.25% + 1.5275% - 0.901%
= 1.8765% ≈ 2.17%
The result is closest to 2.17%, which corresponds to option B.
Ultimate access to all questions.
An analyst gathers the following information about a country's economy:
Based on the growth accounting equation, the potential annual GDP growth of the economy is closest to:
A
1.88%.
B
2.17%.
C
2.80%.
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