A macroeconomic variable is pro cyclical if
A. it grows faster than GDP
B. its deviations from trend generally change before the deviation from trend in GDP do
C. its deviations from trend generally change more than the deviations from trend GDP
D. its deviations from trend are more often of the same sign as the deviations from trend GDP
Answer: D. its deviations from trend are more often of the same sign as the deviations from trend GDP
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Illustrate the effectiveness of monetary policy with fixed exchange rates
What will be an ideal response?
On the graph above, suppose the economy has moved from point H to point G. If the shock was temporary and inflation expectations are adaptive, the economy will next ________
A) return to point H B) move to point F C) move to a point between points G and H D) remain at point G E) none of the above