Suppose that real output is growing at 3 percent, the labor force is growing at 2 percent, and capital stock is growing at 1 percent. If labor contributes 70 percent to real GDP and capital contributes 30 percent to total output, then the growth in total factor productivity must equal
A) 6 percent.
B) 4.7 percent.
C) 1.3 percent.
D) 0.3 percent.
E) 0 percent.

Question

Quizplus · Accepted Answer

Total factor productivity can be calculated by subtracting the weighted contribution of labor and capital from the total output growth rate. Using the given percentages, we can calculate:

TFP growth rate = Total output growth rate - (Labor contribution x Labor force growth rate) - (Capital contribution x Capital stock growth rate)
TFP growth rate = 3% - (0.7 x 2%) - (0.3 x 1%)
TFP growth rate = 3% - 1.4% - 0.3%
TFP growth rate = 1.3%

Therefore, the growth in total factor productivity must equal 1.3 percent.

Suppose That Real Output Is Growing at 3 Percent, the Labor