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

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

3. 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.

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

5. 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.

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

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

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

9. 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.

10. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-10 Figure 3.5 Imports and GDP

11. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-11 Figure 3.6 Scatter Plot of Imports and GDP

12. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-12 Figure 3.7 Leading and Lagging Variables

13. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-13 Figure 3.8 Percentage Deviations from Trend in Real GDP (colored line) and the Index of Leading Economic Indicators (black line) for 1959–2006

14. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-14 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.

15. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-15 Figure 3.9 Percentage Deviations from Trend in Real Consumption (black line) and Real GDP (colored line) 1947–2006

16. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-16 Figure 3.10 Percentage Deviations from Trend in Real Investment (black line) and Real GDP (colored line)

17. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-17 Figure 3.11 Scatter Plot for the Percentage Deviations from Trend in the Price Level (the Implicit GDP Price Deflator) and Real GDP

18. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-18 Figure 3.12 Price Level and GDP

19. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-19 Figure 3.13 Percentage Deviations from Trend in the Money Supply (black line) and Real GDP (colored line) for the Period 1959–2006.

20. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-20 Figure 3.14 Percentage Deviations from Trend in Employment (black line) and Real GDP (colored line)

21. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-21 Figure 3.15 Percentage Deviations from Trend in Average Labor Productivity (black line) and Real GDP (colored line) for 1948–2006

22. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-22 Figure 3.16 Seasonally Adjusted (black) and Unadjusted (colored) Money Supply for the Years 2001–2006

23. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-23 Table 3.1 Correlation Coefficients and Variability of Percentage Deviations from Trend

24. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-24 Table 3.2 Summary of Business Cycle Facts

25. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-25 Figure 3.17 Percentage Deviations from Trend in Real GDP and Government Expenditures

26. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-26 Figure 3.18 Scatter Plot of Government Expenditures Against Real GDP

27. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-27 Figure 3.19 Percentage Deviations from Trend in Real GDP and Exports

28. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-28 Figure 3.20 Scatter Plot of Exports vs. GDP

29. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 3-29 Figure 3.21 X and Z