Week 5/6 - Business Cycle Facts & RBC Model

Question 1

What is the business cycle?

Answer 1

Short run fluctuations between economic downturns

Question 2

What is a recession and what happens during a recession?

Answer 2

A recession is a period of economic downturn, when output and employment fall.

Question 3

What are depressions?

Answer 3

Extended periods of a recession.

Question 4

How have the frequency of recession changed over time?

Answer 4

Recessions were much more common in the period before the 1980’s compared to recent times.

Question 5

How are business cycle fluctuations measured?

Answer 5

Yt Cyclical = Yt - Yt trend ( Actual output - Trend output)

Question 6

What is pro-cyclical, countercyclical, and acyclical?

Answer 6

Pro Cyclical - Positivley correlated with GDP
Counter Cyclical - Negativley correlated with GDP
Acyclical - No relation with GDP

Question 7

Is; Consumption, Investment, Capital, Hours worked, Productivity and wages ProCyclical, CounterCyclical OR Acyclical?

Answer 7

Consumption - Procyclical and less volatile than GDP
Investment - Procyclical, more volatile than output
Capital - Acylical, less volatile than output
Total hours worked - Procyclical and as volatile as output
Productivity - Pro Cyclical and less volatile than output