CFA Practice Question

There are 253 practice questions for this study session.

CFA Practice Question

According to the Neoclassical theory, when there is an increase in the growth rate of TFP, the per capita income will:

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".
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?
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