ECON 201 TUTORIAL 1 2023

PART A: DEFINITIONS AND CONCEPTS

1. Define economic growth.

2. What is the difference between economic growth, and the growth in GDP per
capita?
3. Show how a linear production function is different from a constant elasticity of
substitution Cobb Douglas production function.

PART B: GROWTH ACCOUNTING EQUATIONS

1. Given a Cobb Douglas of the form 𝑌 = 𝐴𝐾 q 𝑁 !"q , and assuming a competitive

market, derive the equation of the real wage rate.
2. Given a Cobb Douglas of the form 𝑌 = 𝐴𝐾 q 𝑁 !"q , and assuming a competitive
market, derive the equation of the real interest rate.

Suppose that output grows at 5% per annum and that the share of labour in total
income is 0.80.

3. If capital and labour grows at 5% and 5% respectively, what is the growth rate
of total factor productivity?

Suppose that output grows at 10% per annum and that the share of labour in
total income is 0.80.

4. If capital and labour grows at 10% and 10% respectively, what is the growth
rate of total factor productivity?
5. What can we conclude about Total Factor Productivity by looking at the
outcomes above?
6. What is the contribution of capital growth and labour growth to the growth rate
of output, IN THE SECOND SCENARIO?
7. Given your answer in (6) above, which factor of production has the highest
contribution to the total output growth rate? Why?

PART C: NEOCLASSICAL GROWTH THEORY

 ECON 201 TUTORIAL 1 2023

Using the neoclassical theory of growth, assume that in Country A the savings rate is
0.5, output per person is 10, the population growth rate is 9%, the depreciation rate is
3% and the current capital labour ratio is 10.

1. Is the economy at a steady state? Provide numerical workings to support your

answer.
2. Sketch a Solow (neoclassical) growth model diagram, and indicate the position
of Country A clearly on the diagram.
3. Given your calculations above, will output per person change? Explain your
answer.
4. What is the level of investment required to maintain the steady state capital-
labour ratio if the steady state level of output per person is 20?

PART D: THE GROWTH PROCESS

1. With the aid of a well labelled diagram illustrate the effect of an increase in the
savings rate on the steady-state level of output per-capita and the rate of long-
run economic growth.