b) Wha is the difference between procyclical, countercyclical and acyclical vari
ID: 1145124 • Letter: B
Question
b) Wha is the difference between procyclical, countercyclical and acyclical variables? Explain. Define the type of each variable listed below (Instruction: do not rewrite the list, just put the numbers for each type) (i) budget deficit; (ii) firms profits; (iii) consumption spending; (iv) number of unemployed; (v) budget revenues; (vi) net exports; (vii) interest rate; (vi) business inventories; (ix) exports; (x) aggregate incomes; (xi) sum of unemployment insurance payments; (xii) price level; (xiii) sum of pension payments; (xiv estment spending (xv) private sector saving; (xvi) imports; (xvii) demand for money; (xviii) indirect taxrevenues; (xix) government purchases (xx) financial assets prices; (xxi) rate of depreciation; (xxii) real estate prices; (xxiii) supply of loanable funds.Explanation / Answer
Procyclical variables are variables that have positive relationship between them for instance increase in rate of one variable will tend to increase a rate of other variable if they are procyclical.
Similarly if they are countercultural then increase in rate of one variable will tend to decrease the rate of other variable hence they are called as countervariable.
If no definite relation is found between two variables then they are called as acyclical.
(1) It is countercyclical as budget deficit decreases as Growth rate of GDP increases and vice versa
(2) firms profit are procyclical for same reasoning mentioned above
(3) Consumer spending also increase with increase in GNI per capita and decrease accordingly in opposite case. Procyclical
(4)Number of unemployed decreases as economy grows and increases as economy falls hence coutercyclical
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