The business cycle component of the log of real per capita GDP is equal to
A) log of trend GDP divided by log of actual real GDP.
B) log of trend per capita GDP - log of actual real per capita GDP.
C) log of actual real GDP divided by log of trend GDP.
D) log of trend GDP - log of actual real GDP.
E) log of actual real per capita GDP - log of trend per capita GDP.

Question

Quizplus · Accepted Answer

The business cycle component of the log of real per capita GDP is the difference between the log of actual real per capita GDP and the log of trend per capita GDP. This reflects the fluctuations in economic activity around its long-term trend. Option A and C are incorrect because they involve dividing the log of one variable by the log of another, which does not provide any business cycle information. Option B simply subtracts the log of actual real per capita GDP from the log of trend per capita GDP, which is not the correct formula for the business cycle component. Option D is also incorrect as it subtracts the log of actual real GDP from the log of trend GDP without adjusting for population changes, which does not provide the per capita business cycle component.

The Business Cycle Component of the Log of Real Per