How did they solve for alpha in Growth Accounting?


How did they solve for Alpha in the Ruritania problem? One can’t simply guess and check…

They employed – hang onto your chair! – algebra.

4.3\% = 1.8\% + 3.1\%\left(\alpha\right) + 2.2\%\left(1 - \alpha\right)
2.5\% = 3.1\%\left(\alpha\right) + 2.2\% - 2.2\%\left(\alpha\right)
0.3\% = 0.9\%\left(\alpha\right)
\alpha = \frac{0.3\%}{0.9\%} = \frac13 ≈ 0.3333
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Again, send me back to 6th grade! I’m staring right at it; if it was a snake, it would have bit me by now.

Thanks a million as usual.

My pleasure.

Ha! Hey, I have a few outstanding questions in the Level 2 Equities section. Do you mind taking a stab at them?

You might want to start a new thread, but, sure!

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