The Solow Residual Helps Explain Growth That Derives from

question 11

Multiple Choice

The Solow residual helps explain growth that derives from

• A)increasing the size of the labor force.
• B)increasing the size of the capital stock.
• C)increasing the capital-labor ratio.
• D)anything except increases in the size of the labor force or the capital stock.

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Definitions:

Crowding-out Effect

A situation where increased government spending leads to a reduction in private sector investment.

Multiplier Effect

An economic phenomenon where an increase in spending produces an increase in national income and consumption greater than the initial amount spent.

Aggregate Demand

The aggregate market demand for goods and services in an economic environment, valued at a specific price level within a certain timeframe.

MPC

Marginal Propensity to Consume, which is the proportion of any additional income that a consumer spends on goods and services.