Manipulation of the Cobb Douglas Equation gives us expression for output per working age person:
growth rate of (Y/N)=[1/(1-alpha)*growth rate of TFP]+[(alpha/(1-alpha))*growth rate of (K/Y)]+ [growth rate of (L/N)]
N is the working age population
K is capital stock
L is labor quantity
TFP is total factor productivity
Why is this equation useful?
What are the main determinants of K/Y and L/N
The Cobb Douglas equation is used to calculate the productivity of factors, growth rate of output by using the ratio of labor to total population and the ratio of capital to the total income in a country at a point of time.
K/Y is the ratio between capital and total income and L/N is the ratio between the labor force and the total population of the nation at a point of time.
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