It typical uctuates in the same direc on as gdp ie

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Unformatted text preview: y as more K. •  Since net investment, ∆K, equals real saving, this result is consistent with our finding that real saving increased. 9 Matching the Theory with the Facts •  Our model makes a number of predic-ons about how fluctua-ons in macro variables match up with varia-ons in real GDP. •  Procyclical, Countercyclical, Acyclical –  A procyclical variable moves in the same direc-on as the business cycle—it tends to be high rela-ve to its trend in a boom and low rela-ve to its trend in a recession. –  A variable that fluctuates in the opposite direc-on from real GDP is countercyclical. –  A variable that has liNle tendency to move in a par-cular direc-on during a business cycle is acyclical. 10 We will focus on Canadian data since 1961. Consump-on expenditures: 59% of GDP.  ­  It typical fluctuates in the same direc-on as GDP (i.e., procyclical).  ­  It fluctuates less than GDP – standard devia-on was 1.1% compared to 1.3% for GDP. 11 Investment: 16% of GDP.  ­  It is procyclical.  ­  It fluctuates much more than GDP – standard devia-on of 6.8%. 12 Permanent shi^s in the technology level, A, match up with some of the empirical paNerns •  Increases in A generate economic booms, where real GDP increases, and consump-on and investment both increase. Does the model explain why investment fluctuates propor-onately far more than consump-on? 13 •  Real Wage Rate –  The model predicts that the real wage rate, w/P, will be rela-vely high in booms and rela-vely low in recessions. –  US data supports this predic-on. Wage data in Canada are limited. Perhaps may not be as flexible as in the US due to unions (more unioniz...
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