- CFA Exams
- CFA Level I Exam
- Study Session 4. Economics
- Reading 11. Economic Growth and the Investment Decision
- Subject 5. Theories of Growth

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**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.

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**User Contributed Comments**
5

User |
Comment |
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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? |