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

Question

Quizplus · Accepted Answer

The Solow residual represents the portion of output growth that cannot be explained by increases in capital or labor inputs. It is calculated as the difference between actual output growth (gy) and the growth that can be explained by increases in capital (gK) and labor inputs (αgN + (1 - α)gK). Therefore, option A represents the correct formula for the Solow residual, incorporating labor's share of total output (α) in the equation.

Let α Represent Labor's Share of Total Output