Transcript Chapter 3
Chapter 3 Business Cycle Measurement Copyright © 2008 Pearson Addison-Wesley. All rights reserved. Chapter 3 Topics • Regularities in GDP fluctuations. • Comovement • Behavior of Key Macroeconomic Variables Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-2 Regularities in GDP Fluctuations • Business Cycles are fluctuations about trend in real GDP. • The turning points in the deviations of real GDP from trend are peaks and troughs. • Persistent positive deviations from trend are booms and persistent negative deviations from trend are recessions. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-3 Figure 3.1 Idealized Business Cycles Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-4 Deviations From Trend in Real GDP are Irregular • The fluctuations in GDP about trend are quite choppy. • There is no regularity in the amplitude of fluctuations in real GDP about trend. • There is no regularity in the frequency of fluctuations in real GDP about trend. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-5 Figure 3.2 Percentage Deviations from Trend in Real GDP from 1947–2006 Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-6 Figure 3.3 Time Series Plots of x and y Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-7 Figure 3.4 Correlations Between Variables y and x Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-8 Correlation With Real GDP • If the deviations from trend in a macroeconomic variable are positively (negatively) correlated with the deviations from trend in real GDP, then that variable is procyclical (countercyclical). • If a macroeconomic variable is neither procyclical nor countercyclical, it is acyclical. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-9 Figure 3.5 Imports and GDP Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-10 Figure 3.6 Scatter Plot of Imports and GDP Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-11 Figure 3.7 Leading and Lagging Variables Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-12 Figure 3.8 Percentage Deviations from Trend in Real GDP (colored line) and the Index of Leading Economic Indicators (black line) for 1959–2006 Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-13 Behavior of Key Macroeconomic Variables • Components of GDP: consumption and investment. • Nominal variables: price level and money supply. • Labor market variables: employment, real wage, average labor productivity. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-14 Figure 3.9 Percentage Deviations from Trend in Real Consumption (black line) and Real GDP (colored line) 1947–2006 Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-15 Figure 3.10 Percentage Deviations from Trend in Real Investment (black line) and Real GDP (colored line) Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-16 Figure 3.11 Scatter Plot for the Percentage Deviations from Trend in the Price Level (the Implicit GDP Price Deflator) and Real GDP Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-17 Figure 3.12 Price Level and GDP Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-18 Figure 3.13 Percentage Deviations from Trend in the Money Supply (black line) and Real GDP (colored line) for the Period 1959–2006. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-19 Figure 3.14 Percentage Deviations from Trend in Employment (black line) and Real GDP (colored line) Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-20 Figure 3.15 Percentage Deviations from Trend in Average Labor Productivity (black line) and Real GDP (colored line) for 1948–2006 Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-21 Figure 3.16 Seasonally Adjusted (black) and Unadjusted (colored) Money Supply for the Years 2001–2006 Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-22 Table 3.1 Correlation Coefficients and Variability of Percentage Deviations from Trend Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-23 Table 3.2 Summary of Business Cycle Facts Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-24 Figure 3.17 Percentage Deviations from Trend in Real GDP and Government Expenditures Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-25 Figure 3.18 Scatter Plot of Government Expenditures Against Real GDP Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-26 Figure 3.19 Percentage Deviations from Trend in Real GDP and Exports Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-27 Figure 3.20 Scatter Plot of Exports vs. GDP Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-28 Figure 3.21 X and Z Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-29