Question 4: Neoclassical Model vs Data

The table below shows how the cyclical components of different aggregate time series are correlated with output. The six variables on which we focus are aggregate consumption, investment, labor input, the real wage, the real interest rate, and the price level.

Variable | Correlation with Output

Consumption | Positively Correlated

Investment |Positively Correlated

Labor |Positively Correlated

Real Wage |Positively Correlated

Real Interest Rate |Not Correlated

Price Level |Negatively Correlated

Is there one exogenous variable in the neoclassical model that can explain all the correlations in the data? If so, which one? If not, can any two shocks simultaneously explain the correlations?

Show your work graphically (using the 5-graph diagram). Explain!