The behavior of the Solow residual suggests that when current total factor productivity increases
A) it becomes more difficult to predict future total factor productivity.
B) future total factor productivity is also likely to increase.
C) such increases are temporary, so we can draw no conclusions about the likely behavior of future total factor productivity.
D) future total factor productivity is likely to decrease.

Question

Quizplus · Accepted Answer

The Solow residual is a measure of technological progress or total factor productivity. An increase in the Solow residual indicates an increase in total factor productivity which suggests that future total factor productivity is also likely to increase. Therefore, choice B is the correct answer.

The Behavior of the Solow Residual Suggests That When Current