If the combined growth in capital and labor is -1 (negative one) percent and total factor productivity grows by 1.5 percent, then output
A) falls by 2.5 percent.
B) rises by 0.5 percent.
C) falls by 1.5 percent.
D) rises by 2.5 percent.
E) rises by 1 percent.

Question

Quizplus · Accepted Answer

The output growth can be calculated by adding the growth in capital and labor to the growth in total factor productivity. If the combined growth in capital and labor is -1% and total factor productivity grows by 1.5%, the total output growth is -1% + 1.5% = 0.5%. Therefore, output rises by 0.5 percent.

If the Combined Growth in Capital and Labor Is -1