Question 2 (4 points): Short Answers. Answers should not exceed a normal paragraph (4 - 5 lines)

1. 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.
2. 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.

\fCorrelation Std. Dev. (% of S.D. of GDP) Coefficient (GDP) Consumption 0.78 83% Investment 0.81 509 Employment 0.79 80 Average labour productivity 0.65 64