Total factor productivity may be measured by:
A) subtracting the rate of growth of capital input and the rate of growth of labor input from the rate of growth of output.
B) subtracting the rate of growth of capital input, multiplied by capital's share of output, plus the rate of growth of labor input, multiplied by labor's share of output, from the rate of growth of output.
C) adding the rate of growth of capital input to the rate of growth of labor input.
D) adding the rate of growth of capital input, multiplied by capital's share of output, to the rate of growth of labor input, multiplied by labor's share of output.

Question

Quizplus · Accepted Answer

Total factor productivity is a measure of how efficiently inputs (capital and labor) are being used to produce output. Option B subtracts the growth of inputs multiplied by their respective share of output from the growth of output, which gives a measure of how much productivity growth is occurring. Option A only subtracts the growth of inputs from the growth of output, which doesn't account for differences in how much capital and labor contribute to output. Option C only adds the growth of inputs together, without accounting for their relative contributions. Option D adds the growth of inputs multiplied by their respective share of output, which gives a measure of output growth that is not adjusted for productivity growth.

Total Factor Productivity May Be Measured By