Question

The Solow​ residual, the most common measure of productivity shocks is

a. An increase in the saving rate
b. A decrease in the population growth rate
c. An increase in total factor productivity
d. A decrease in the depreciation rate

Answer 1

The Solow residual measures total factor productivity (TFP), which represents the portion of economic growth that cannot be attributed to changes in inputs such as labor and capital. It captures technological advancements and improvements in efficiency. Therefore, the correct answer is c) An increase in total factor productivity.

Step-by-step explanation:

Productivity growth is measured by the Solow residual, which is an indicator of total factor productivity (TFP). It represents the portion of economic growth that cannot be attributed to changes in inputs such as labor and capital. The Solow residual captures technological advancements and improvements in efficiency that lead to increased output with the same level of inputs. Therefore, the correct answer is c) An increase in total factor productivity.