1. The correlation between changes in housing net worth and wages is about 0.0998. What does this correlation suggest about whether wages are flexible or fixed?

2. Consider the productivity shock theory of the Great Recession. Explain what this theory states. Give computed data: 1. On average, housing net worth fell by approximately 3,962% from 2006 to 2009. 2.Average growth for tradeable employment: -103%. Average growth for non-tradeable employment (Firms with 1-4 employees):97%. Average growth for non-tradeable employment (Firms with 100+ employees): 183%. 3. The correlation between growth in employment across the tradeable and non-tradeable sectors is about 0.06. 4. The correlation between changes in housing net worth and wages is about 0.0998. Use some of the previous results to cast doubt on it.

3. Explain how the different correlations you calculated in Q8 between housing net worth changes and tradeable vs. non-tradeable employment also casts doubt on the credit supply story. The correlation between changes in housing net worth and tradeable employment growth is about 0.0164 and the correlation between changes in housing net worth and non-tradeable employment growth is about 0.262. You can assume that these two sectors are completely the same except for whether they sell their goods locally or to a national market.