Prescott interpreted fluctuations in the Solow residual as evidence that:
A) technology shocks are an important source of short-run economic fluctuations.
B) the Solow growth model does not converge to a steady-state equilibrium.
C) endogenous growth models are better explanations of growth than the Solow model.
D) the marginal product of labor fluctuates more than the marginal product of capital.

Question

Quizplus · Accepted Answer

Prescott's interpretation suggests that the Solow residual, which captures the unexplained portion of output growth, is driven by technology shocks, indicating that technology is a key source of short-run fluctuations in the economy.

Prescott Interpreted Fluctuations in the Solow Residual as Evidence That