Changes in total factor productivity are plausible causes of business cycles because productivity-induced business cycles correctly predict

Question

Quizplus · Accepted Answer

If total factor productivity increases, firms can produce more goods and services with the same amount of inputs (e.g. labor). This leads to an increase in output, which in turn leads to an increase in income and consumption. Therefore, an increase in total factor productivity is likely to be associated with procyclical movements in real wages and consumption.

Changes in Total Factor Productivity Are Plausible Causes of Business