In the equation of previous question, once you aggregate above and find the grow

Question

In the equation of previous question, once you aggregate above and find the growth rate, the following equation results: (1-)n 1-- Bn 1-- Where gp is per capita income (or output) growth rate, g is growth rate of total income (or output) Y, given in question 12, n is the rate of population growth, and the parameters and are given in question 12, From this equation, which statement is a) The higher is externality effect the higher is per capita output growth but the lower is total output growth The higher s esemaityffec te ota owthbut the nigner s output rowmr O b) The higher is externality effect the higher is per capita output growth and the higher is total output growth. The higher is externality effect the lower s per capita output growth and the lower s total output growth. d

Explanation / Answer

Higher the value of externality given by alpha and beta, lower will be the per capita output growth gp and lower the total output growth g. Given that alpha plus beta equals one, there is a negative relationship between externality and per capita growth rate and total output growth rate. The answer is d.

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