Let a represent labour's share of total output. The Solow residual is represented by:

A) gy - [AgN + (1 - A) gk].
B) gy.
C) 1/(1- A).
D) AgN.
E) gk.

Question

Let a represent labour's share of total output. The Solow residual is represented by:

A) gy - [AgN + (1 - A) gk].
B)	gy.
C) 1/(1- A).
D)	AgN.
E)	gk.

Quizplus · Accepted Answer

The Solow residual is the portion of output that cannot be explained by the traditional inputs of labor and capital. It is represented by gy minus the portion of output that can be explained by AgN (the contribution of technology to output when holding capital and labor constant) and (1-A)gk (the contribution of capital to output when holding labor constant, where (1-A) is the share of output going to capital). Therefore, the correct formula is A) gy - [AgN + (1 - A) gk].

Let a Represent Labour's Share of Total Output