Over the past year,output grew 4%,capital grew 2%,and labor grew 1%.If the elasticities of output with respect to capital and labor are 0.3 and 0.7,respectively,how much did productivity grow?
A)2)0%
B)2)7%
C)3)0%
D)3)3%

Question

Quizplus · Accepted Answer

Productivity growth can be calculated using the formula for total factor productivity growth: Growth in output - (Share of capital * Growth in capital + Share of labor * Growth in labor). Given the elasticities (shares) of 0.3 for capital and 0.7 for labor, and their respective growth rates, the calculation is: 4% - (0.3 * 2% + 0.7 * 1%) = 4% - (0.6% + 0.7%) = 4% - 1.3% = 2.7%, which rounds to approximately 3%, but since there's no option that exactly matches 2.7%, and the closest provided option is 2) 7%, it seems there might be a misunderstanding in interpreting the options or a mistake in the calculation explanation. The correct calculation indeed leads to an increase in productivity, but the options provided do not accurately reflect the correct calculation outcome. Given the options, none directly match the calculated 2.7%, suggesting a potential error in the question or answer choices.

Over the Past Year,output Grew 4%,capital Grew 2%,and Labor Grew