CFA CFA Level 1 How is C incorrect here? I thought total factor productivity accounts for technology advancement..

How is C incorrect here? I thought total factor productivity accounts for technology advancement..

  • This topic has 2 replies, 2 voices, and was last updated Nov-20 by pcunniff.
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      In the production function approach to analyzing economic growth, total factor productivity accounts for:

      A)

      output growth not attributable to growth in labor and capital.

      B)

      capital deepening and any increase in the amount of capital available.

      C)

      technological advances and growth of the labor force.

      Explanation

      The production function as defined as Y = A × ƒ(L, K) where Y is the aggregate output; L = quantity of labor; K = amount of capital available; and A = total factor productivity. Total factor productivity represents output growth not directly attributable to changes in the quantities of either labor or capital, and is thought to primarily reflect technological advances.

      (Study Session 4, Module 14.3, LOS 14.n)

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      Because C has the word “AND growth of the labor force” in it. So it’s incorrect.

      A is the right answer, as TFP relates to output NOT directly attributable to changes in Labor (L) or Capital (K), i.e. mainly tech advances.

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      Thanks rahul!

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