Question

In: Economics

a) Please calculate the Total Factor Productivity of a countryfor a year with the following...

a) Please calculate the Total Factor Productivity of a country for a year with the following data on Real GDP of the country along with other required information:

Y   = $ 2,000 billion

L   =     40 billion hours

K   = $ 10, 000 billion

α   = 0.7

b) If the labour force increases by 20%, how it will affect the total factor productivity?

Solutions

Expert Solution

(a) Total factor productivity = (Y​​​​​​t / L​​​​​​t )(1-a) (Y​​​​​​t / K​​​​​​t )(a)

= (2000/40)(1-0.7) (2,000/10,000)(0.7) = 50(0.3) 0.2 (0.7) = 3.2336 × 0.3241 = 1.048

Hence Total factor productivity is 1.048.

(b) labour increased by 20% hence now labour is equal to 40 + 20% of 40 = 40 + 8 = 48 billion hours

Now Total factor productivity = (2000/48) (0.3) + (2000/10000)(0.7) = 41.67 (0.3) 0.2 (0.7) = 3.0616 × 0.3241 = 0.992

Hence Total factor productivity is 0.992.

Rahul Sunny answered 2 years ago
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