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