Assume that the economy grows by 3 percent, total factor productivity grows by 2 percent, and the labor force grows at 2 percent.If labor contributes 40 percent to real GDP, then the stock of capital must have risen by 0.33 percent.

Question

Quizplus · Accepted Answer

The correct answer is true because the formula for calculating the growth rate of real GDP is:Growth rate of real GDP = Growth rate of total factor productivity + Growth rate of labor force + Growth rate of capital stockIn this case, the growth rate of total factor productivity is 2 percent, the growth rate of labor force is 2 percent, and the growth rate of real GDP is 3 percent. Therefore, the growth rate of capital stock must be 1 percent.

Assume That the Economy Grows by 3 Percent, Total Factor