Chapter 12, Problem 2DAP

To determine

1. The average growth rates for the corporate net worth and private domestic investment variables over the most recent four quarters of data available and also the difference between the values, during the most recent quarter and one year earlier, of the stress index. Comment on the relationships among private domestic investment, financial stress, and net wealth of corporate businesses.
2. For the four quarters of 2005 and for the period from 2008:Q3 to 2009:Q2, repeat part (a) and then comment on the relationships, before and during the crisis, among private domestic investment, financial stress, and net wealth of corporate business and to comment on how the typical dynamics of a financial crisis is related to the crisis-period data by assuming that financial stress measure is indicative of heightened asymmetric information problem.
3. How the data from the period prior to the financial crisis and during the crisis is compared to the current investment data? What you think, whether the current data is indicative of a bubble or not?

Concept Introduction:

Growth Rate: When a variable experience a percentage change occurring in a specific time period and context than that phenomena is called as growth rate and it can be referred as compounded annual rate.

Bubble: The rapid escalation of asset prices followed by a contraction is characterized as a bubble which is an economic cycle.