W1P3 - NotebookLM Flashcards
What is the general trend of GDP over time, and what does it indicate?
GDP increases over time but fluctuates around a trend. This long-term increase can be interpreted as the equilibrium level of output.
What is Okun’s Law?
Okun’s Law describes the relationship between the deviation of output from its trend and the difference of unemployment from its trend.
What is an HP filter, and what is one important consideration when using it?
HP filters are used to define trends empirically. The trend reacts to new data, which can be seen as a feature or a bug.
How do different filtering methods affect economic analysis?
Different filtering methods can yield different results regarding whether the economy is above or below trend, so awareness is needed.
Define procyclical and countercyclical variables and give examples.
Consumption and output are procyclical, moving closely together. Government spending tends to be countercyclical, although not always strongly.
Explain why correlation isn’t causation.
Correlation does not equal causation; observed relationships between variables require further investigation to determine the direction of influence.
Describe the timing relationships between variables.
Variables can be leading, lagging, or coincident; consumption and output roughly move at the same time.
How does investment behave relative to output?
Investment is procyclical but more volatile than output.
How does consumption volatility differ between rich and poor countries?
Consumption is less volatile than output in rich countries but more volatile in poorer countries.
What are the three building blocks of economic models?
Economic models consist of exogenous variables (inputs), a structural model, and endogenous variables (outcomes), where the classification of variables depends on the model’s purpose.
What is the difference between static and dynamic models?
Models can be static (equilibrium-focused) or dynamic (examining movements between equilibria), with dynamic models being more complex and often requiring computer solutions.
