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 1 - a)on capital and labor in the production function are procyclical.

Question

Quizplus · Accepted Answer

The Solow residual is defined as the portion of output growth that cannot be attributed to changes in the inputs of labor and capital, but rather to changes in technology or other factors. However, the actual level of inputs (such as labor and capital) used in production can be strongly procyclical due to changes in resource utilization during business cycles. For example, if output increases during an economic boom, firms may use more inputs to meet the increased demand, leading to higher resource utilization. This can result in a higher Solow residual, even if the actual technology used in production hasn't changed.

One Important Reason Why the Solow Residual May Be Strongly