Suppose the economy grows by 2.5 percent, the labor force rises by 3 percent, and capital rises by 1 percent.If capital takes 50 percent of real GDP and labor takes the other 50 percent of real GDP, then the growth in total factor productivity must be _____.

Question

Quizplus · Accepted Answer

In this scenario, the 2.5% GDP growth is equal to the combined growth rate of capital (1%) and labor (1.5%, which is 50% of the 3% increase in the labor force). Therefore, there is no growth in total factor productivity, as all of the GDP growth is accounted for by the increase in inputs (capital and labor).

Suppose the Economy Grows by 2