How is the Solow residual measured? What problems arise in its measurement when resource utilization varies over the business cycle? What implications do these measurement issues have for evidence supporting the RBC model?
What will be an ideal response?
The Solow residual is measured as Y / (Ka N1-a). But when resource utilization varies over the business cycle, this isn't the correct measure of productivity. As a result, productivity appears to be procyclical, but in fact productivity might be constant. Thus the fact that the measured Solow residual is strongly procyclical, which has been taken as evidence in support of RBC models, may not be proof that productivity shocks drive the business cycle.
You might also like to view...
A college must decide if it wants to offer more adult literacy classes. This decision involves answering the economic question of "what to produce."
Indicate whether the statement is true or false
An efficient allocation of resources requires each product's price to equal its marginal cost
a. True b. False Indicate whether the statement is true or false
After graduating from high school, Adam is thinking about going to college. The college tuition is $15,000 a year. Instead of going to college, Adam could take a full-time job that pays $25,000. What is Adam's opportunity cost of attending college for
one year? A. $10,000 B. $15,000 C. $25,000 D. $40,000
The aggregate production function takes inputs and turns them into the country's output, or GDP.
Answer the following statement true (T) or false (F)