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Question 2 (4 points): Short Answers. Answers should not exceed a normal paragraph (4 - 5 lines) We have measured average labor productivity in this
Question 2 (4 points): Short Answers. Answers should not exceed a normal paragraph (4 - 5 lines)
- We have measured average labor productivity in this chapter as Y/N, where Y is real GDP and N is employment. The business cycle facts concerning employment relate to how the denominator N comoves with the numerator Y, and those concerning average labor productivity relate to how Y/N comoves with Y. Explain how the business cycle facts concerning employment and average labor productivity in Tables 3.1 and 3.2 are consistent.
- Consumption of durables is more variable relative to trend than consumption of semi-durables, and consumption of semi-durables is more variable relative to trend than consumption of nondurables and services. Speculate on why we observe these phenomena, and relate this to the key business cycle facts in Tables 3.1 and 3.2.
- In Figure 3.12 what do you observe in the 1970s? Does this period fit with a standard Phillips curve story? Explain in the context of USA and Canada.
- The Bank of Canada began targeting inflation at 2% beginning in 1991. In Figure 3.12, what do you observe about the variability of inflation about trend before 1991, and after 1991? Does this represent a success or failure of the Bank of Canada's inflation targeting policy? Why?
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