Question 1

Which of the following best describes a 'business cycle' in macroeconomics?

Accepted Answer

Fluctuations about trend in real GDP, including periods of booms and recessions.

Question 2

Suppose the log of real GDP per capita for Canada is detrended using the Hodrick-Prescott filter. What does the resulting cyclical component represent?

Accepted Answer

The difference between the raw data and the growth component, showing short-term fluctuations around trend.

Question 3

If a macroeconomic variable is procyclical, which of the following statements is true?

Accepted Answer

Its deviations from trend are positively correlated with deviations from trend in real GDP.

Question 4

During the COVID-19 pandemic, which of the following anomalies in macroeconomic behavior was observed in Canada?

Accepted Answer

Average labour productivity rose above trend while employment fell below trend.

Question 5

Which of the following is an example of a leading variable with respect to real GDP?

Accepted Answer

A stock market index, because its peaks and troughs tend to precede those of real GDP.

Question 6

Suppose the correlation coefficient between deviations from trend in imports and real GDP is positive and large. What does this imply about imports?

Accepted Answer

Imports are procyclical.

Question 7

Which of the following best describes the amplitude of a business cycle?

Accepted Answer

The size of the maximum deviation from trend in real GDP.

Question 8

Given the following correlation coefficients with real GDP for Canada (pre-COVID): consumption (0.84), investment (0.66), employment (0.87), and average labour productivity (0.47). Which variable is most strongly procyclical?

Accepted Answer

Employment

Question 9

If the correlation coefficient between deviations from trend in the price level and real GDP is close to zero, what does this indicate?

Accepted Answer

The price level is acyclical.

Question 10

Suppose $$Y is $$real GDP, $$C is $$consumption, and $$I is $$investment. If the standard deviation of percentage deviations from trend in $$I is 2.95 $$times that of $$Y$$, what does this imply about investment?

Accepted Answer

Investment is more variable than GDP.

Question 11

Which of the following steps is NOT typically part of detrending macroeconomic data to study business cycles?

Accepted Answer

Calculating the cyclical component as the sum of the raw data and the growth component.

Question 12

If a variable is a lagging variable with respect to real GDP, which of the following is true?

Accepted Answer

Its peaks and troughs tend to follow those of real GDP.

Question 13

During a recession, which of the following is most likely to occur based on Canadian business cycle facts?

Accepted Answer

Persistent negative deviations from trend in real GDP.

Question 14

Which of the following best describes the relationship between employment and real GDP in Canada, based on the data from 1976-2023?

Accepted Answer

Employment is procyclical, lagging, and less variable than real GDP.

Question 15

Suppose the correlation coefficient between the inflation rate and real GDP is positive. Which economic theory does this support?

Accepted Answer

The Phillips curve.

Question 16

If $$	ext{cor}(y_t, x_{t-j}) \u003e 	ext{cor}(y_t, x_t)$$ for some $$j \u003e 0$$, what does this imply about variable $$x$$ relative to real GDP $$y$$?

Accepted Answer

Variable $$x is a $$lagging variable.

Question 17

Which of the following is true about the frequency and amplitude of real GDP fluctuations in Canada?

Accepted Answer

There is no regularity in either the frequency or amplitude of real GDP fluctuations.

Question 18

If a macroeconomic variable is acyclical, what would you expect its correlation coefficient with real GDP to be?

Accepted Answer

Close to 0.

Question 19

Which of the following is a correct multi-step process for analyzing business cycle properties of a macroeconomic variable?

Accepted Answer

Take the raw data, calculate the cyclical component by subtracting the trend (using a filter like Hodrick-Prescott), and then compute the correlation with real GDP deviations from trend.

Question 20

Suppose you observe that investment in Canada is procyclical, coincident, and more variable than GDP. Which of the following best summarizes this observation?

Accepted Answer

Investment moves with GDP, peaks and troughs at the same time as GDP, and fluctuates more than GDP.

Business Cycle Measurement and Macroeconomic Variables: Chapter 3 Study Notes

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