Let α represent labor's share of total output.The Solow residual is,therefore,represented by
A)αgy.
B)αgA.
C)αgK.
D)αgN.
E)1 / α.

Question

Quizplus · Accepted Answer

The Solow residual is represented by the equation y = Ak^α * (nL)^(1-α), where A represents total factor productivity. Taking the natural logarithm of both sides and differentiating with respect to time yields the Solow residual equation: gA = gy - αgn - (1-α)gn. Solving for A gives A = (y/k^α) / (nL)^(1-α) = y/(kn^α L^(1-α)). Since α represents labor's share of total output, multiplying by α gives αgy/(kn^α L^(1-α)), which is choice B.

Let α Represent Labor's Share of Total Output