Which two components contribute to GDP growth?

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Prepare for the CFA Level 3 Exam. Utilize flashcards and multiple-choice questions with hints and explanations to boost your readiness. Ace your test!

The two components that contribute to GDP growth, as indicated in the selected answer, are growth from labor inputs and changes in labor productivity.

Labor inputs refer to the number of workers or the total hours worked in an economy. An increase in the labor force or an increase in the hours worked directly contributes to higher economic output, thus fostering GDP growth.

Changes in labor productivity are also crucial. Productivity measures how effectively labor is used to produce goods and services. An improvement in productivity means that each worker can produce more in the same amount of time, leading to higher total output without necessarily increasing the number of workers.

Together, expanding both the workforce and enhancing productivity directly drive growth in the economy's overall output, indicating robust economic health reflected in GDP figures. These two elements work in tandem to ensure that as a nation employs more workers or makes existing workers more efficient, the total economic output rises, ultimately benefiting GDP growth.

Other options, while they may touch upon important factors in economic dynamics, do not accurately represent the core components necessary for GDP growth as clearly as the focus on labor inputs and productivity does.