Which government policy would be more effective at increasin

Which government policy would be more effective at increasing output per capita (if such a policy was available):

a policy which doubles the savings rate.

a policy which doubles the productivity of capital.

a policy which doubles population growth.

all three policies would have equal effectiveness.

Solution

A policy which doubles the productivity of capital.

Since output(Y) depends on labour(L) and capital(K) we can write;

Y=F(K,L)=L.F(K/L,1) (Since it is homogenous of degree 1)

or, Y/L=F(K/L,1) ; Y/L=output per-capita, K/L=capital per worker

or, Y/L=f(K/L) ; (As 1 is constant)

So output per capita depends on productivity of capital.

On the otherhand, government cannot directly have control over population growth and individual saving. Withal population growth is inversely related with output per capita if technology is fixed.

Hence the second option is correct.