It typical uctuates in the same direc on as gdp ie

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

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...
View Full Document

{[ snackBarMessage ]}

Ask a homework question - tutors are online