Question

How would you define short-run fluctuation or ‘detrended output’. Provide the formula.

How would you define short-run fluctuation or ‘detrended output’. Provide the formula.

Homework Answers

Answer #1

The portion of production not explained by the long-run trend is called short run output. Short-run output is a key variable studied int he theory of economic fluctuations. It is commonly measured in percentage terms and denoted by the variable tildeY(with ~ over it). Economists also refer to this as "detrended output". It is the difference in actual and potential output, expressed as a percentage of potential output.

Detrended output and can be found by subtracting the potential output from the actual output and dividing by the potential output
Yt~ = Yt - Ytbar / Ytbar

Where Yt~ is Detrended Output, Yt is Actual Output and Ytbar is Potential Output.

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