+1. According to the real business cycle theory, productivity shocks are an important source of business cycles. Using the Cobb Douglas production function (for example, Eq. 3.2 ) and annual

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data since 1961, calculate and graph U.S. total factor productivity.

Use real GDP for , the capital stock from the source listed in Y

Table 3.1 for , and civilian employment for . Look for

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periods marked by sharp changes up or down in productivity.

How well do these changes match up with the dates of business cycle peaks and troughs? (See Chapter 8 .)

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