In growth accounting, what does Total Factor Productivity represent?

• A. The part of output growth not explained by measured inputs of capital and labor; improvements come from technology and efficiency.
• B. The portion of economic growth explained by capital accumulation.
• C. The total amount of available resources in the economy.
• D. The share of growth attributed to population growth.

Answer: (D)

Total Factor Productivity is the portion of output growth that cannot be explained by the measured inputs of capital and labor. It captures how productively those inputs are used—effects from technology, improvements in efficiency, better organization, innovations, and other factors that make each unit of capital and labor more productive. When output grows faster than what could be explained by more or better inputs alone, TFP is the reason. So, it’s the residual that reflects technology and efficiency improvements rather than the sheer amount of capital, labor, or population growth.