W1P3 Economic Concepts

Question 1

What is a procyclical variable and provide an example?

Answer 1

a variable that tends to rise in periods of high growth
and tends to fall in periods of low growth e.g. consumption or investment

Question 2

What is a countercyclical variable and provide an example?

Answer 2

a variable that tends to fall in periods of high
growth and tends to rise in periods of low growth e.g. unemployment
or risk premiums

Question 3

What is a leading variable and provide an example?

Answer 3

a variable that moves before GDP, and therefore carries
predictive power about future values of GDP e.g. consumer confidence, bond yields, or stock indices

Question 4

What is a lagging variable and provide an example

Answer 4

a variable that moves after GDP, and therefore is partly
predicted by GDP e.g. unemployment or price indices