Let α represent labor's share of total output.The Solow residual is represented by
A)gᵧ - [αgN + (1 - α)gK].
B)gᵧ.
C)gK.
D)αgN.
E) 1 / (1 - α).

Question

Quizplus · Accepted Answer

The Solow residual is a measure of technological progress and productivity growth in an economy. It can be calculated as the difference between the actual growth rate of output (gᵧ) and the growth rate of output that can be explained by changes in labor (gN) and capital (gK) inputs, given the production function. Labor's share of total output is represented by α. Therefore, the correct formula for the Solow residual is gᵧ - [αgN + (1 - α)gK]. Choice A represents this formula, making it the best choice.

Let α Represent Labor's Share of Total Output