Macro Module 3 Cobb-Douglas Production Function basic practice exam questions

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Question 3.1: Cobb-Douglas production function

An economy has a Cobb-Douglas production function: Y = AKα L(1-α), with α = 81%.

If labor increases 3.27%, capital increases 5.40%, and the technology level increases 4.23%, what is the increase in real GDP?

Answer 3.1: 3.27% × (1 – 81%) + 5.40% × 81% + 4.23% = 9.23%