ECON 303 Chapter Notes -Procyclical And Countercyclical, Business Cycle, Disposable And Discretionary Income
Document Summary
P=-1 means perfect negative correlation which means x and y move in opposite directions. A variable with the following correlation with real gdp is as follows: Change in g cannot cause the business cycle because c is and g==> y c. Since employment is procyclical it seems more important to explain (un)employment than movement in hours worked procyclical. Chapter 10 (since y, k & n are observable) so our utility then becomes: u(c0,c1) We have m consumers/workers with the following preference over leisure and consumption: u(c0,l0 , c1,l1) where 0 is the 1st period and 1 is the 2nd period. Increase in income will increase c0 and c1 (consumption smoothing: consumer prefers to spread an increase in income over his lifetime rather than consuming it all at once) 4)c0 is weakly preferred to c1 (impatience) ex: u(c0,c1)=c0. So y0 will change if w0 or 0 changes. Consumers can transfer income between period 0 and period 1 by borrowing and saving.
