$\text { Consider the following production function }$ Y = A×K^a×L^1?a

question 3

Multiple Choice

$\text { Consider the following production function }$ Y = A×K^a×L^1?a. If a = 0.4, and over the past year total factor productivity (TFP) grew 2.6 percent, capital grew 2 percent, and labor grew 1 percent, what was the growth rate of output over the year?

• A)2 percent
• B)3 percent
• C)4 percent
• D)5 percent

---

Definitions:

Cross Elasticity

A measure of the responsiveness of demand for one product in relation to a price change in another, highlighting substitute or complementary relationships between products.

Demand

The desire to own anything, coupled with the power to obtain it.

Price Increase

A rise in the cost of goods and services, which can be caused by factors such as inflation, increased production costs, or higher demand.

Demand Curves

Graphs displaying the relationship between the price of a good and the quantity demanded by consumers, typically downward sloping.