Question

Check the boxes for the predictions of what happens in the neoclassical model when TFP or A increases:

C increases

Y increases

S decreases

L increases

r decreases

W/P decreases

Answer 1

Option (2) is answer . Because, when total factor productvity increases then output level produced by the firm will increase as Y = A *F(K, L).The theory states that short-term equilibrium results from varying amounts of labor and capital in the production function. The theory also argues that technological change has a major influence on an economy, and economic growth cannot continue without technological advances.Neoclassical growth theory outlines the three factors necessary for a growing economy. These are labor, capital, and technology. However, neoclassical growth theory clarifies that temporary equilibrium is different from long-term equilibrium, which does not require any of these three factors.