Deck 3: Business Cycle Measurement

Question 1

Why is forecasting GDP in the long run so difficult?

A) There is no expertise in forecasting the long run trend in real GDP.
B) There is no regularity in the frequency and amplitude of fluctuations in real GDP.
C) These is an absence of data that provides any information on future trends.
D) Current models are not sophisticated enough to conduct this exercise.
E) Structural and statistical forecasting provide differing results.

Answer 1

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

Question 2

Comovement relates to

A) the relationship between real and nominal interest rates.
B) the movement between price levels and real GDP over time.
C) macroeconomic variables fluctuating together in patterns that exhibit strong regularities.
D) the movement of business cycles over time.
E) the frequency of the business cycles.

Answer 2

macroeconomic variables fluctuating together in patterns that exhibit strong regularities.

Question 3

The defining feature of business cycles is that they

A) are inherently bad.
B) represent the underlying trend of real GDP in the economy.
C) are fluctuations about trend in real GDP.
D) measure prospects for future growth in the economy.
E) measure standards of living and productivity.

Answer 3

are fluctuations about trend in real GDP.

Question 4

Comovement can be determined by

A) examining a scatter plot.
B) economic forecaseting models.
C) determining whether a series leads or lags.
D) determining the persistence in a series.
E) marking peaks and troughs.

Question 5

A business cycle peak is a

A) small positive deviation from trend in real GDP.
B) relatively large positive deviation from trend in real GDP.
C) small negative deviation from trend in real GDP.
D) relatively large negative deviation from trend in real GDP.
E) minimum deviation from trend in real GDP.

Question 6

The defining feature of business cycles is that they are

A) changes in the trend component of real GDP.
B) fluctuations about trend in real GDP.
C) fluctuations about trend in the unemployment rate.
D) fluctuations about trend in the level of employment.
E) fluctuations about trend in standards of living.

Question 7

Amplitude of the business cycle is

A) the amount of volatility in the business during one year.
B) the size of the minimum deviation from trend.
C) where the turning points of the business cycle occur.
D) the size of the maximum deviation from trend.
E) the amount of employment and real GDP changes during one year.

Question 8

An example of a statistical model is the

A) WHARTON model.
B) Bayesian vector autoregression model.
C) DRI (Data Resources Incorporated) model.
D) Keynesian model.
E) Milton Friedman model.

Question 9

Positive correlation between x and y implies that

A) when x is high, y is high.
B) when x is high, y is low.
C) when x is zero, y is positive.
D) x and y are positively unrelated.
E) the trend is unpredictable.

Question 10

The property that macroeconomic variables fluctuate together in patterns that exhibit strong regularities is called

A) coincidence.
B) comovement.
C) correlation.
D) coexistence.
E) a leading indicator.

Question 11

Business cycle persistence refers to the property that

A) real GDP is rarely exactly at trend.
B) booms and recessions last a long time.
C) when real GDP is above trend, it tends to stay above trend, and when it is below trend, it tends to stay below trend.
D) business cycles are persistently hard to predict.
E) real GDP tends to stay in the peaks and troughs of the business cycle.

Question 12

In Canada,three important recessions occurred between

A) 1944-1946, 1951-1952, and 1962-1964.
B) 1978-1979, 1984-1985, and 1988-1989.
C) 1974-1975, 1981-1982, and 1990-1992.
D) 1981-1982, 1996-1997, and 2003-2004.
E) 1987-1988, 1994-1995, and 2002-2003.

Question 13

Which of the following is a feature of recent Canadian business cycles?

A) The time series of deviations from trend in real GDP is quite smooth.
B) There is regularity in flucuations in real GDP about trend.
C) There is regularity in the amplitude of fluctuations in real GDP about trend.
D) They are not persistent.
E) There is no regularity in the amplitude of fluctuations in real GDP about trend.

Question 14

Before 2000,the three most recent Canadian recessions occurred in

A) 1969-1973, 1979-1982, and 1994-1995.
B) 1973-1975, 1982-1985, and 1990-1991.
C) 1974-1975, 1981-1982, and 1990-1992.
D) 1981-1982, 1990-1991, and 1998-1999.
E) 1944-1945, 1955-1956, and 1990-1992.

Question 15

The value of macroeconomic knowledge is in

A) understanding macro phenomena and guiding policy.
B) producing forecasts.
C) accurately forcasting stock prices.
D) understanding firm level behaviour.
E) accurately predicting recessions.

Question 16

Comovement can be discussed by

A) looking at the amplitude of the business cycle.
B) looking at the frequency of the business cycle.
C) looking at the peaks and troughs of the business cycle.
D) plotting the percentage deviations from trend in two economic variables.
E) economic forecasting models.

Question 17

A business cycle trough is a

A) small positive deviation from trend in real GDP.
B) relatively large positive deviation from trend in real GDP.
C) small negative deviation from trend in real GDP.
D) relatively large negative deviation from trend in real GDP.
E) minimum deviation from trend in real GDP.

Question 18

Robert Lucas has popularized the notion that with respect to

A) severity, business cycles are all alike.
B) causation, business cycles are all alike.
C) quantitative behaviour of comovements among series, business cycles are all alike.
D) qualitative behaviour of comovements among series, business cycles are all alike.
E) deviations from trend real GDP, business cycles over time are all alike.

Question 19

The 2008-2009 rcession was more severe than all recent recessions except the one in

A) 1981-1982.
B) 1974-1975.
C) 1990-1991.
D) 2001-2002.
E) 1969-1973.

Question 20

Which of the following is a feature of recent Canadian business cycles?

A) The time series of deviations from trend in real GDP is quite choppy.
B) The time series of deviations from trend in real GDP is quite smooth.
C) There is no regularity to the amplitude of fluctuations in GDP below trend.
D) There is no regularity to the frequency of fluctuations in GDP below trend.
E) They are difficult to measure.

Question 21

If we plotted the level of good cholesterol in the blood against the incidence of heart disease,we would observe a

A) negative correlation.
B) positive correlation.
C) zero correlation.
D) an uncertain result.
E) time series.

Question 22

Inventory investment tends to be

A) coincident.
B) leading.
C) lagging.
D) so unchanging that it is hard to classify.
E) procyclical.

Question 23

If the correlation coefficient between x and y is equal to 1,we say that x and y are

A) perfectly positively correlated.
B) acyclical.
C) perfectly negatively correlated.
D) leading variables.
E) lagging variables.

Question 24

If the correlation between GDP and y is 0.75,we say y is

A) procyclical.
B) countercyclical.
C) acyclical.
D) negatively correlated.
E) cyclical.

Question 25

A measure of the degree of correlation between two variables is a

A) statistical correlation.
B) financial correlation.
C) correlation statistic.
D) correlation coefficient.
E) correlation variable.

Question 26

If the correlation coefficient between x and y is equal to -1,we say that x and y are

A) imperfectly negatively correlated.
B) perfectly negatively correlated.
C) lagging variables.
D) perfectly positively correlated.
E) countercyclical.

Question 27

If a macroeconomic variable tends to aid in predicting the future path of real GDP,it is said to be a

A) convenient variable.
B) coincident variable.
C) leading variable.
D) lagging variable.
E) correlated variable.

Question 28

Forecasting the future path of real GDP by exploiting past statistical relationships

A) is never very reliable.
B) can be accomplished by the construction and use of an index of leading variables.
C) can be accomplished by the construction and use of an index of lagging variables.
D) can be accomplished by the construction and use of an index of coincident variables.
E) can only be accomplished if there is a perfectly positive correlation.

Question 29

Negative correlation between x and y implies that

A) when x is high, y is high.
B) when x is high, y is low.
C) xy < 0.
D) x/y < 0.
E) the trend is unpredictable.

Question 30

Real investment tends to be

A) procyclical and less variable than real GDP.
B) procyclical and more variable than real GDP.
C) countercyclical and less variable than real GDP.
D) countercyclical and more variable than real GDP.
E) acyclical with real GDP.

Question 31

The Composite Index of Business Leading Indicators tends to

A) lag income growth.
B) lag employment growth.
C) lead employment growth.
D) lead inflation.
E) lead real GDP.

Question 32

If deviations from trend in a macroeconomic variable are positively correlated with deviations from trend in real GDP,that variable is said to be

A) useful in predicting future movements in real GDP.
B) procyclical.
C) countercyclical.
D) acyclical.
E) uncorrelated.

Question 33

If real GDP helps to predict the path of a particular macroeconomic variable,it is said to be a

A) conventional variable.
B) coincident variable.
C) leading variable.
D) lagging variable.
E) correlated variable.

Question 34

If the correlation between GDP and y is -0.75,we say y is

A) procyclical.
B) acyclical.
C) positively correlated.
D) countercyclical.
E) persistent.

Question 35

Investment tends to be a

A) procyclical variable.
B) coincident variable.
C) acyclical variable.
D) a lagging variable.
E) a leading variable.

Question 36

If we plotted cigarettes smoked per year against the incidence of lung cancer,we would observe a

A) negative correlation.
B) positive correlation.
C) zero correlation.
D) an uncertain result.
E) time series.

Question 37

If the deviations from trend in a macroeconomic variable is neither procyclical not countercyclical,it is

A) positively correlated.
B) a correlation coefficient.
C) lagging.
D) coincident.
E) acyclical.

Question 38

Real consumption tends to be

A) procyclical and less variable than real GDP.
B) procyclical and more variable than real GDP.
C) countercyclical and less variable than real GDP.
D) countercyclical and more variable than real GDP.
E) acyclical with real GDP.

Question 39

Comovement can be discerned by

A) calculating the percentage deviations from trend in real GDP.
B) whether it is a procyclical or countercyclical variable.
C) calculating the correlation coefficient between the percentage deviations from trend.
D) determining if it is a lagging or leading indicator.
E) looking at the composite index of business leading indicators.

Question 40

If deviations from trend in a macroeconomic variable are negatively correlated with deviations from trend in real GDP,that variable is said to be

A) useless in predicting future movements in real GDP.
B) procyclical.
C) countercyclical.
D) acyclical.
E) uncorrelated.

Question 41

The Phillips curve shows the relationship between

A) real and nominal interest rates.
B) real and nominal GDP.
C) money prices and aggregate economic activity.
D) procyclical and countercyclical variables.
E) lagging an leading variables.

Question 42

In their study on business cycles,Backus and Kehoe found

A) correlations amongst real economic variables differed greatly among countries.
B) price level was consistently procyclical.
C) no consistent correlations amongst economic variables.
D) price level was consistently countercyclical.
E) correlations amongst real economic variables were similar across countries and over time.

Question 43

Average labour productivity is computed as the

A) ratio of industrial production to the employment rate.
B) ratio of real output in manufacturing to the level of real GDP.
C) ratio of real GDP to the unemployment rate.
D) ratio of real GDP to the level of employment.
E) ratio of labour input to real GDP.

Question 44

The Great Moderation best applies to the behaviour of which series in Canada?

A) stock prices
B) real GDP
C) investment
D) inflation
E) nominal GDP

Question 45

Difficulties in determining the cyclical pattern in real wage rates from aggregate data are primarily due to biases due to

A) substitution behavior.
B) substantial differences across different business cycles.
C) variations in the composition of the labour force over the business cycle.
D) changing policy responses to business cycles.
E) variations in inflation and unemployment

Question 46

Which of the following best explains why the U.S.experienced a Great Moderation while Canada did not?

A) Canadian luck was worse than the U.S.'s.
B) Financial development was stronger in the U.S.
C) Monetary policies differed significantly between the two countries.
D) Canadian luck was better than the U.S.'s.
E) Financial development was stronger in Canada.

Question 47

Why is forecasting GDP over the long term so difficult?

Question 48

The weight of empirical evidence suggests that in Canada,the real wage rate is

A) acyclical.
B) bicyclical.
C) procyclical.
D) countercyclical.
E) lagging.

Question 49

The Great Moderation is a period of reduced variability in real GDP that

A) applies well to the experience in the U.S. from 1980-2007, but less so in Canada.
B) applies well to the experience in Canada from 1980-2007, but less so in the U.S.
C) was perceived to have occurred but really did not.
D) applies well to the experience in the U.S. and Canada from 1940-1980.
E) applies well to the experience in Canada since 2010, but less so in the U.S.

Question 50

A reverse Phillips Curve would consist of a

A) positive relationship between deviations from trend in real and nominal interest rates.
B) negative relationship between deviations from trend in real and nominal interest rates.
C) positive relationship between deviations from trend in the level of prices and the level of aggregate economic activity.
D) negative relationship between deviations from trend in the level of prices and the level of aggregate economic activity.
E) relationship between lagging and leading indicators.

Question 51

For the period 1976-2011,employment in Canada was

A) procyclical and leading.
B) procyclical and lagging.
C) countercyclical and leading.
D) countercyclical and lagging.
E) coincident.

Question 52

For the period 1961-2011 in Canada,the money supply was

A) procyclical and leading.
B) procyclical and lagging.
C) countercyclical and leading.
D) countercyclical and lagging.
E) coincident.

Question 53

For the period 1961-2011 in Canada,the price level

A) was uncorrelated with real GDP.
B) led changes in real GDP.
C) was acyclical.
D) lagged changes in real GDP.
E) was coincident with changes in real GDP.

Question 54

For the period 1961-2011 in Canada,the price level was

A) countercyclical.
B) bicyclical.
C) procyclical.
D) acyclical.
E) leading.

Question 55

Seasonal adjustment in macroeconomic analysis

A) is not usually important.
B) is not necessary because economic activity tends to be too irregular for data-adjustment purposes.
C) is often appropriate because most macroeconomic time-series exhibit predictable seasonal patterns.
D) cannot be done because seasonal variation in production is extremely volatile and unstable.
E) should never be done because is can mask important seasonal phenomena.

Question 56

Real wages are defined as

A) inflation-adjusted wages.
B) nominal wages plus the expected rate of inflation.
C) the purchasing power of the wage earned per hour worked.
D) income after adjusting for productivity.
E) the average money wage for all workers.

Question 57

Average labour productivity tends to be a

A) lagging variable.
B) coincident variable.
C) leading variable.
D) an acyclical variable.
E) variable that is difficult to classify.

Question 58

Average labour productivity tends to be

A) procyclical and less variable than real GDP.
B) procyclical and more variable than real GDP.
C) countercyclical and less variable than real GDP.
D) countercyclical and more variable than real GDP.
E) acyclical with real GDP.

Question 59

The observation that the money supply is procyclical and leading the level of aggregate economic activity is most closely associated with

A) Lucas and Friedman.
B) Friedman and Schwartz.
C) Kydland and Prescott.
D) David Runkle.
E) Keynes.

Question 60

One example of a Phillips Curve would be a

A) positive relationship between deviations from trend in real and nominal interest rates.
B) negative relationship between deviations from trend in real and nominal interest rates.
C) positive relationship between deviations from trend in the level of a money price (the wage rate) prices and the level of aggregate economic activity.
D) negative relationship between deviations from trend in the level of prices and the level of aggregate economic activity.
E) positive relationship between deviations from trend in the level of prices and the level of aggregate economic activity.