Assignment-9 – Due: Dec. 1
QUESTION-4: [A: 3 + 3 + 2+ 4, B: 4 + 4, C: 5 = 25]
A)
a) Use graphs to differentiate and explain between procyclical, countercycle and acyclical
co-movements.
b) Explain the statistical tool used to define volatility, cyclical movements, lead and lag of
series.
c) Differentiate between regular business cycle and real business cycle.
d) In the overlapping generation model, the elasticity of consumption with respect to the
technology is less than the elasticity of investment with respect to the technology.
Interpret the above result in terms of real business cycle theory. Elasticities are the
relative changes in consumption and investment whereas, the absolute change in
consumption is larger than the change in investment. Comment on this statement.
Table below reports correlations between GDP and Xt.
Variables SD% Correlation
xt-1
of GNP
xt
with
xt+1
GNP 2.32 .63 1.00 .85
Consumption 1.25 .83 .82 .58
Inventory Investment 12.5 .53 .67 .51
Govt. expenses 2.02 -.01 .04 .05
Money M1 1.25 .35 .30 .23
CPI 1.05 -.30 -.30 -.28
GDP Deflator 1.55 -.84 -.85 -.86

B)
i. List variables those show procyclical, counter cyclical and acyclical behavior.
ii. List variables those show lagging and leading behavior.

C) The monetary authority has to choose between stabilizing output or inflation. Assuming
that monetary authority is committed to the Taylor rule: = ̅ + ିଵ + ℎ( − ∗) +
( − ത). Show graphically, in the absence of demand shock, whether a positive supply
shock results in the trade-off between output and inflation stability. For graph, assume
(blow, hhigh) and (bhigh, hlow).


欢迎咨询51作业君