Copyright © 2008 Pearson Addison-Wesley. All rights reserved. Chapter 3 Business Cycle Measurement

Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-2 Chapter 3 Topics Regularities in GDP fluctuations. Comovement Behavior of Key Macroeconomic Variables

Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-3 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. 3-4 Figure 3.1 Idealized Business Cycles

Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-5 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. 3-6 Figure 3.2 Percentage Deviations from Trend in Real GDP from 1947–2006

Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-7 Figure 3.3 Time Series Plots of x and y

Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-8 Figure 3.4 Correlations Between Variables y and x

Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-9 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 Figure 3.5 Imports and GDP

Copyright © 2008 Pearson Addison-Wesley. All rights reserved Figure 3.6 Scatter Plot of Imports and GDP

Copyright © 2008 Pearson Addison-Wesley. All rights reserved Figure 3.7 Leading and Lagging Variables

Copyright © 2008 Pearson Addison-Wesley. All rights reserved 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 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 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 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 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 Figure 3.12 Price Level and GDP

Copyright © 2008 Pearson Addison-Wesley. All rights reserved 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 Figure 3.14 Percentage Deviations from Trend in Employment (black line) and Real GDP (colored line)

Copyright © 2008 Pearson Addison-Wesley. All rights reserved 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 Figure 3.16 Seasonally Adjusted (black) and Unadjusted (colored) Money Supply for the Years 2001–2006

Copyright © 2008 Pearson Addison-Wesley. All rights reserved Table 3.1 Correlation Coefficients and Variability of Percentage Deviations from Trend

Copyright © 2008 Pearson Addison-Wesley. All rights reserved Table 3.2 Summary of Business Cycle Facts

Copyright © 2008 Pearson Addison-Wesley. All rights reserved Figure 3.17 Percentage Deviations from Trend in Real GDP and Government Expenditures

Copyright © 2008 Pearson Addison-Wesley. All rights reserved Figure 3.18 Scatter Plot of Government Expenditures Against Real GDP

Copyright © 2008 Pearson Addison-Wesley. All rights reserved Figure 3.19 Percentage Deviations from Trend in Real GDP and Exports

Copyright © 2008 Pearson Addison-Wesley. All rights reserved Figure 3.20 Scatter Plot of Exports vs. GDP

Copyright © 2008 Pearson Addison-Wesley. All rights reserved Figure 3.21 X and Z