Describe the behavior of consumption, investment, labor, productivity, wages, the price level and the money supply over the business cycle both in terms of correlation, magnitude and lead vs lag. Give the economic intuition of the results on consumption, investment, produc- tivity, wages and price levels. [Note, I am looking for the correlation between each of these items and income. Give leads and lags only when the most important correlation is not contemporaneous. You may trust the author of the book on this one.]

Question
Asked Dec 9, 2019
44 views

Describe the behavior of consumption, investment, labor, productivity, wages, the price level and the money supply over the business cycle both in terms of correlation, magnitude and lead vs lag. Give the economic intuition of the results on consumption, investment, produc- tivity, wages and price levels. [Note, I am looking for the correlation between each of these items and income. Give leads and lags only when the most important correlation is not contemporaneous. You may trust the author of the book on this one.]

check_circle

Expert Answer

Step 1

The two extreme phases of the business cycle and its impact is as follows:

 

1. Boom: During this phase, the GDP of the economy is on a rising trend and the citizen of the country experience higher standards of living which will lead to high investment, high consumption, higher employment, high productivity which leads to higher wages leading to high money supply and ultimately high price level that is inflation. Thus, there is high positive correlation between all the components with large magnitude impact and thus leading in all the factors. The research and development activities are rising in the economy. As the GDP is on the rising economy is experiencing a higher volume of domestic and international trade and greater involvement of the government in international trade contracts.

Step 2

2. Trough: During this phase, the GDP of the country reaches a very low level. The standards of living in the economy are on a downward trend due to lower levels of disposable income because of the high level of unemployment in the economy. Under this phase economic activities are very low, and people are not finding work to do and surviving with the lower level of income because of this generally...

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in

Business

Economics

Related Economics Q&A

Find answers to questions asked by student like you
Show more Q&A
add
question_answer

Q: Consider the classical open-economy macroeconomic model. Explain how a Federal Reserve action such a...

A: The purchase of the bonds is carried out by the Fed and this is a part of the Federal open Market Op...

question_answer

Q: a. The nation of Alphaville has been hunting their deer population to extinction. The government dec...

A: a) Capital stuffing in fisheries involve huge investment in highly productive equipments so as to in...

question_answer

Q: Trace the impact of a sale of government bonds by the Central bank on bond prices, interest rates, i...

A: The sale of government bonds by the Central bank will lead to a rise in the supply of bonds in the m...

question_answer

Q: Suppose that annual output in year 1 in a 3-good economy is 3 quarts of ice cream, 1 bottle of shamp...

A: 1.The nominal GDP of the year can be calculated by multiplying the price of a commodity with its qua...

question_answer

Q: Charlie owns his own candy factory where he employs individuals to make his world-famous toffee. The...

A: a.The marginal product of labor is the change in the output due to a change in the quantity of labor...

question_answer

Q: Sean receives a portion of his income from his holdings of interest-bearing U.S. government bonds. T...

A: The nominal interest rate can be calculated using following formula-

question_answer

Q: Part D

A: Monopolist refers to a market situation where there is a single seller selling good having no close ...

question_answer

Q: What are causes and effects of low policy rates

A: Causes of lower policy rates are:Supply and demandA decrease in the demand for credit will decrease ...

question_answer

Q: Prices for fresh fruit went up 9% last year and 3% this year. What is the average inflation rate per...

A: Average inflation rate is the increase in the price of a basket of goods over a period of time. It r...