If supply shocks drive the cycle, then labor productivity should be pro-cyclical. Recall the facts… Big debate in the profession, on how to interpret the Solow residual. What is a negative A shock? Why should positive A shocks across industries be correlated? Recall in a business cycle all the sectors of the economy move together. Variable capital utilization Can a demand shock be misinterpreted as an A shock? What is K? How do you measure K? Does K vary across time? Why care?