which statement about neoclassical approach to growth accounting is correct:

A. The growth in total factor productivity is not directly observable

B. The growth factors must be stated in nominal (ie not inflation-adjusted) term.

C . The total output may not growth at a rate faster than predicted by the growth in capital stock and labor force.

rahuls
May 17, 2012, 6:13am
#2
A…you may use Solow residual to observe TFP changes…

CFAI also says A…however…why is it not C

We know out put = G productivity + @ * G capital + (1-@)* G labor.

Now if G productivity = 0 -> out put = cap + lab…Is it not means “not growth at a rate faster…”??? or it comes from my english ?

rahuls
May 17, 2012, 6:33am
#4
constant returns to scale (change in TFP - A= 0)…it says chane in output Y will increase at the same % change in K & L irrespective of value of alpha & beta…

so…C is also correct ???

the question come from CFAI text book

rahuls
May 17, 2012, 6:56am
#6
Solow residual only tells us the growth rate would be the same.

To conclude that it can not grow faster than that would be inappropriate…hence choose A i guess…

What if there is a decrease in labor input (think Japan) or capital input (think Syria)?

What if there is a negative total factor productivity (think Greece)?

C may be incorrect if the variables may be negative.

tulkuu
May 17, 2012, 1:32pm
#8
C. The total output may not growth at a rate faster than predicted by the growth in capital stock and labor force.

This is incorrect since the total output MAY grow at a rate faster than predicted by the growth in capital stock and labor force. This is the case when TFP is high enough.

The true is that:

(G) output = A + aK + bL (b=1-a)

Curr do not say that A may be negative but may be 0 (contant …scale)

if A=0 -> Output = aK+bL

C say: The total output may not growth at a rate faster than…–> it is correct when out put grow at rate equal to…

It is incorrect when say: …may not grow faster than or equal to…

that is what i want to say about the question.

Ref: Question 11 Page 181 Reading 19 - Equity market valuation book 3

cpk123
May 18, 2012, 1:16am
#10
Look at it as ak + bL is the MAXIMUM possible value for Growth is Solow Residual is 0.

So they are right when they say it cannot grow FASTER than …

Hey guy, it is maximun or minimum ?

because A >=0 ???

cpk123:

deleted.

Sorry all guys,

It is actually come from my English…I did not understand correctly what MAY NOT mean…

got it