- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 9. Economic Growth
- Subject 5. Theories of Growth
CFA Practice Question
According to the Neoclassical theory, when there is an increase in the growth rate of TFP, the per capita income will:
B. remain the same.
C. decrease.
A. increase.
B. remain the same.
C. decrease.
Correct Answer: C
This is because the labor supply and the level of TFP both remain the same.
User Contributed Comments 5
| User | Comment |
|---|---|
| broadex | i dont get this??? |
| 602099361 | Can anyone explain this? |
| daverco | I don't think this can be correct. "long-run growth in income per capita in an economy with an aggregate neoclassical production function must be driven by growth in TFP". http://www.people.hbs.edu/dcomin/def.pdf Unless this is some rare exception... |
| dada | This is the direct quote from the textbook: An increase in the growth rate of TFP reduces the steady state capital-to-labor ratio and output per worker for given levels of labor input and TFP. The answer is correct. There is a difference between increase in growth rate and the growth rate itself. If the TFP is growing at 5% per year, there is NO increase in the growth rate although it is growing! |
| davidt876 | if "the growth rate of TFP" is the numerator of a positive fraction in the equation for "growth rate of output per capita ".. how, can an increase in the growth rate of TFP decrease per capita income/output? |