One important reason why the Solow residual may be strongly procyclical even if the actual technology used in production doesn't change is that
A)employment is procyclical.
B)resource utilization is procyclical.
C)demand shocks are the dominant force determining the business cycle.
D)the coefficients (a and l-a)on capital and labour in the production function are procyclical.

Question

Quizplus · Accepted Answer

The Solow residual measures the portion of output growth that cannot be attributed to increases in inputs of capital and labor, which includes changes in resource utilization. Therefore, if resource utilization is procyclical, the Solow residual may also be strongly procyclical even if the actual technology used in production doesn't change.

One Important Reason Why the Solow Residual May Be Strongly