Question

Which of the statements clearly demonstrates that total factor productivity is increasing? Assume the aggregate production function is upward sloping and exhibits diminishing returns.

Real GDP per worker grows at the same rate as human capital per worker.

Physical capital per capita, human capital per capita, and real GDP per capita remain constant.

The size of the labor force falls due to emigration which leads to a decrease in real GDP and human capital per worker. Real GDP per worker remains unchanged and physical capital per worker increases.

Physical capital per worker and human capital per worker decrease, but real GDP per worker remains unchanged.

Answer 1

Physical capital per worker and human capital per worker decrease, but real GDP per worker remains unchanged.

Step-by-step explanation:

Total factor productivity, or technological progress, is attributed to changes in output per worker after accounting for changes in physical and human capital per worker. Total factor productivity rises if human capital and physical capital remain unchanged but GDP per worker rises. Similarly, if physical and human capital per worker fall but real GDP per worker remains constant, total factor productivity must have increased. Otherwise, a reduction in both would have led to a reduction in real GDP per worker.

If all factors of production remain constant and GDP does not change, total factor productivity must be unchanging as well.

If real GDP per worker rises at the same rate as human capital per worker, total factor productivity must be unchanging.

The scenario with emigration has countervailing forces since physical capital per worker increases while human capital per worker has fallen so that it is impossible to tell whether the stability of real GDP per worker is due to increases in total factor productivity.