The simplest calculation of the growth rate of multifactor productivity starts with the growth rate of real GDP and then
A)subtracts the growth rate of labor.
B)subtracts the growth rate of capital.
C)subtracts the growth rate of labor and some fraction of the growth rate of the capital-labor ratio.
D)adds the growth rate of labor and then subtracts the depreciation and population growth rates.

Question

Quizplus · Accepted Answer

The growth rate of multifactor productivity can be calculated by subtracting the growth rate of labor and some fraction of the growth rate of the capital-labor ratio from the growth rate of real GDP, as shown by the formula: growth rate of MFP = growth rate of real GDP - growth rate of labor - (1/3 x growth rate of capital-labor ratio). This is because multifactor productivity measures the efficiency with which both labor and capital are being used in the production process, so it is affected by changes in both factors. Subtracting the growth rate of labor and a fraction of the growth rate of the capital-labor ratio allows us to isolate the contribution of MFP to overall economic growth. The other answer choices do not accurately reflect the calculation of MFP growth rate.

The Simplest Calculation of the Growth Rate of Multifactor Productivity