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Cobb-Douglas Production Function Labor Share Growth Rate Estimation

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The document describes an imaginary economy with a Cobb-Douglas production function relating capital (K) and labor (L) to output (Y). It states that in a given year, wages grew 4%, labor grew 2%, and capital grew 4%. It asks by approximately how much the labor share grew.

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An imaginary economy uses only capital (K) and labor (L). The production function is Cobb- Douglas: = K^0.5 ^0.5. If in a year the wage grew 4%, labor grew 2% and capital grew 4%, by approximately how much did the labor share grow? You can use the approximation formula as in Canvas document Some useful properties of growth rates. a. Around 2%. b. Around 4%. c. Around 3%. d. Around 1%

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Cobb-Douglas Production Function Labor Share Growth Rate Estimation

  • 1. An imaginary economy uses only capital (K) and labor (L). The production function is Cobb- Douglas: = K^0.5 ^0.5. If in a year the wage grew 4%, labor grew 2% and capital grew 4%, by approximately how much did the labor share grow? You can use the approximation formula as in Canvas document Some useful properties of growth rates. a. Around 2%. b. Around 4%. c. Around 3%. d. Around 1%