Researchers seeking to estimate total factor productivity often use investment to proxy the growth of the capital stock, but investment is an inaccurate measure of true g_K because: A) investment data ignores depreciation. B) investment data ignores the intensity with which capital is used C) investment data does not always measure the quality of new equipment versus old equipment. D) All of the above. E) None of the above.

Question

Quizplus · Accepted Answer

Investment data ignores depreciation, which means that it does not take into account the fact that existing capital stock is gradually wearing out and needs to be replaced. Investment data also ignores the intensity with which capital is used, which means that it does not take into account the efficiency with which existing capital stock is being utilized. Additionally, investment data does not always measure the quality of new equipment versus old equipment, which means that it may not accurately capture changes in productivity that result from technological advancements.

Researchers Seeking to Estimate Total Factor Productivity Often Use Investment