Business Cycle and Quantity Theory of Money

Practice flashcards covering the key concepts from the lecture on Business Cycle and Quantity Theory of Money.

What do we focus on in Business Cycle Analysis?

Deviations from long run trend rather than the trend itself.

How does investment volatility compare to GDP?

Investment is much more volatile than GDP.

What is the correlation between inflation and money growth according to international data?

There is a significant correlation,

What are the two views of Stabilization Policy in business cycles?

1. It eliminates recessions but also eliminates expansions. 2. It can stabilize the economy under certain conditions.

What factors characterize typical features of recessions and expansions?

1. Volatility 2. Co-movement of variables 3. Phase Shift of variables.

What is a common definition of hyperinflation?

Hyperinflation is defined as inflation that exceeds 50%.

What is the Quantity Theory of Money?

It states that the price level and the rate of inflation are determined by changes in the level and growth rate of the money supply.

What caused the Great Depression according to historical data?

The money supply contracted dramatically, resulting in deflation and a collapse of financial markets.

What was the average deviation of consumption from GDP?

Consumption is less volatile than GDP.

How do real wages behave according to aggregate data?

Aggregate data shows real wages are neither pro- nor counter-cyclical.