Business Cycle Measurement - Business Cycle Measurement...

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  Business Cycle Measurement Comovement Comovement describes how aggregate economic variables move together over the business cycle Comovements between real GDP and another macroeconomic variable can be characterized as i. Procyclical, or ii. Countercyclical, or iii. Acyclical A macroeconomic variable can be a i. Leading variable, or ii. Lagging variable, or iii. Coincident variable 1 The cyclical variability in an economic time series is measured by the standard deviation of the percentage deviations from trend Growth models The Solow growth model is a framework for understanding the economic growth process Endogenous growth models model the economic mechanism determining the rate of economic growth There is little disagreement with regards to the general approach to constructing models of economic growth Theories of the business cycle There is much controversy concerning business cycle theory and the role of the government in smoothing business cycles The real business cycle theory
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Unformatted text preview: Market segmentation theory • Keynesian coordination failure theory • New Keynesian theory Lessons from Analysis • What is produced and consumed in the economy is determined jointly by the economy’s productive capacity and the preferences of consumers • In free market economies, there are strong forces that tend to produce socially efficient economic outcomes • A tax cut not a free lunch • Money takes many forms, and having it is better than not having it. Once we have it, however, changing its quantity ultimately does not matter • Countries gain from trading goods and assets with each other, but trade is also a source of shocks to the domestic economy • In the long run,inflationis caused by growth in the money supply • Unemployment is painful for individuals, but it is a necessary evil in modern economies • There may be a short-run trade-off between aggregate output and inflation, but no such trade-off exists in the long run...
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