What Is the Difference Between a VEC and a VAR

question 6

Multiple Choice

What is the difference between a VEC and a VAR?

• A)The VAR model is for only 2 series and VEC models accommodate 3 or more variables.
• B)The VAR model is a special form of the VEC model and should be used for nonstationary series.
• C)The VEC model is a special form of the VAR and should be used with cointegrated series.
• D)The VAR model deals with stationary series while the VEC allows for dynamic series.

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Definitions:

Tax Revenues

Tax revenues refer to the income that is collected by the government from individuals and businesses, primarily through taxes such as income tax, sales tax, and property tax.

Government Spending

Government spending encompasses all the expenditures of government agencies and departments, including investments, consumption, and transfers, aimed at achieving economic and social objectives.

Cyclically Balanced Budget

A budget philosophy calling for budget deficits during recessions to be financed by budget surpluses during expansions.

Business Cycle

The variation in economic performance experienced by an economy over time, characterized by periods of growth and decline.