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ice5192 ice5192
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In a typical aggregate production function, total factor productivity denotes the quantity of aggregate output that we cannot explain solely by the contributions of the labour and capital inputs. a) In reality, what explains total factor productivity and its movements over time? b) Discuss the problems we might face in trying to measure the factors contributing to changes in productivity over time.
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Macroeconomics, Canadian Edition


Edition: 5th
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Blade73Blade73
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There are many factors that contribute to the level and rate of change in productivity. These include weather, government regulations, energy prices, how production is organized, and new inventions. Trying to uncover how these factors quantitatively affect aggregate productivity over time is difficult, particularly as total factor productivity is the unexplained piece of production that connects inputs with outputs. (i) labour and capital inputs can be mismeasured. (ii) from Chapter 2, we know that aggregate output, i.e. real GDP can be mismeasured. So, if the inputs and output are mismeasured, then total factor productivity is mismeasured as well. But, even if we could measure total factor productivity without error, then connection between, for example, weather and total factor productivity, could also be difficult to measure.
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ice5192 Author
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4 years ago
Yes, correct
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