Q) Calculate the growth rate in potential GDP and then the impact of TFP on growth.
Labour force growth rate = 1.2%
Cost of labour/total factor cost = 54%
Growth rate of capital = 2%
Growth of labour productivity = 2%
A) Growth rate in in potential GDP = long-term growth rate of labour force + long-term growth rate in labour productivity
1.2 + 2 = 3.2% (Potential GDP)
1.2(0.54) + 2(0.46)
0.648 + 0.92 = 1.568
TFP = 1.632% (3.2 - 0.648 - 1.568)
_ Why can’t you work out TFP this way? _
_ If long-term growth rate in labour productivity includes Capital Deepening and TFP, then: _
2(0.46) = 0.92% (Capital Deepening)
TFP = 1.08% (2 - 0.92)
