Thursday, March 24, 2011

Wackypedia: Real Business Cycle Theory

My previous post offers an opinionated ending. So I wanted to check a fact or two, or get an impression to make sure I'm not too far off-base. So I looked at the Wikipedia article on Real Business Cycle Theory. I didn't find anything useful, but I did find this:

At a glance, the deviations just look like a string of waves bunched together—nothing about it appears consistent. To explain causes of such fluctuations may appear rather difficult given these irregularities. However, if we consider other macroeconomic variables, we will observe patterns in these irregularities. For example, consider Figure 4 which depicts fluctuations in output and consumption spending, i.e. what people buy and use at any given period. Observe how the peaks and troughs align at almost the same places and how the upturns and downturns coincide.

At a glance, yes, the red line (consumption spending) closely follows the fluctuations of the other line (GNP).
Yeah, I was amazed, the article refers to GNP, not to GDP.
But, at second glance, it occurs to me that consumption spending is the biggest part of GNP. So of course the two lines travel together. The graph shows nothing at all.

It's a shame, too. I was really liking the article.

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