Measurement errors of changes in the Solow residual during recessions are most likely caused by
A) underutilization of labour and capital.
B) underutilization of labour, but not of capital.
C) underutilization of capital, but not of labour.
D) mismeasurement of real GDP.
E) constant real wage rate.

Question

Quizplus · Accepted Answer

During recessions, both labor and capital are often underutilized, leading to measurement errors in the Solow residual, which is supposed to capture productivity changes.

Measurement Errors of Changes in the Solow Residual During Recessions