W8P1 - Notebooklm

Question 1

What is a business cycle?

Answer 1

A business cycle involves small fluctuations around a long-term trend of economic growth

Question 2

What are some key characteristics of business cycles?

Answer 2

Key characteristics include their duration, the extent of output and consumption fluctuations, and the correlation between consumption and output

Question 3

Why is it necessary to decompose GDP data into trend and cycle components when analysing business cycles?

Answer 3

To understand the fluctuations (cycle component) around the long-term economic growth (trend)

Question 4

What are some methods for decomposing GDP data?

Answer 4

Some methods include fitting a time trend, using moving averages, or applying an HP filter

Question 5

What are the key characteristics of the cycle component of GDP?

Answer 5

The duration (how long a cycle lasts) and the amplitude (how much output increases or decreases)

Question 6

What is the typical average length of a business cycle (from peak to peak)?

Answer 6

Typically between 5 to 8 years

Question 7

What is the typical amplitude of a business cycle, representing the fluctuation of output?

Answer 7

Usually between 2 and 4%

Question 8

What is a common observation regarding the duration of expansion and recession periods?

Answer 8

Expansion periods tend to last longer than recession periods

Question 9

Why are business cycles considered important in a policy context?

Answer 9

Because short-term increases and decreases in GDP are closely watched, and even relatively small deviations from the trend can have significant consequences

Question 10

How does the volatility of consumption typically compare to the volatility of output?

Answer 10

Consumption is typically less volatile than output

Question 11

How does the volatility of investment typically compare to the volatility of output

Answer 11

Investment is significantly more volatile than output

Question 12

What is the typical cyclical behaviour of consumption, investment, exports, and imports?

Answer 12

They are generally procyclical, meaning they increase when output increases

Question 13

What is the typical cyclical behaviour of government spending in the EU and the US?

Answer 13

Government spending tends to be slightly countercyclical in the EU and shows no clear correlation in the US

Question 14

What are the key patterns that a successful business cycle model should be able to replicate?

Answer 14

A consumption response that is less than output, an investment response that is stronger than output, procyclical behaviour of consumption, investment, exports, and imports, and a cycle amplitude of around 2-4%