Question 1

In the coordination failure model, a rightward shift in the labour supply curve

Accepted Answer

A)  increases the real wage and increases employment. 
B)  increases the real wage and decreases employment. 
C)  decreases the real wage and increases employment. 
D)  decreases the real wage and decreases employment. 
E)  increases the real wage and increases output. 
A)  increases the real wage and increases employment. 
B)  increases the real wage and decreases employment. 
C)  decreases the real wage and increases employment. 
D)  decreases the real wage and decreases employment. 
E)  increases the real wage and increases output.

Question 2

One potential weakness of the coordination failure model as an explanation of business cycles is that

Accepted Answer

A)  evidence supporting intertemporal substitution as an important determinant of labour supply is weak. 
B)  evidence supporting the existence of increasing returns at the aggregate level is weak. 
C)  it fails to explain several of the key business cycle regularities. 
D)  it requires that consumers not behave in a rational manner. 
E)  the Bank of Canada does not use all available information. 
A)  evidence supporting intertemporal substitution as an important determinant of labour supply is weak. 
B)  evidence supporting the existence of increasing returns at the aggregate level is weak. 
C)  it fails to explain several of the key business cycle regularities. 
D)  it requires that consumers not behave in a rational manner. 
E)  the Bank of Canada does not use all available information.

Question 3

In the coordination failure model, a rightward shift in the labour supply curve

Accepted Answer

A)  decreases employment and increases real wages. 
B)  increases employment and decreases output. 
C)  decreases employment and increases output. 
D)  decreases employment and decreases output. 
E)  results in no change in employment and the real wage. 
A)  decreases employment and increases real wages. 
B)  increases employment and decreases output. 
C)  decreases employment and increases output. 
D)  decreases employment and decreases output. 
E)  results in no change in employment and the real wage.

Question 4

The Keynesian coordination failure model is most relevant for analyzing the recession of

Accepted Answer

A)  2008-2009. 
B)  1974-1975. 
C)  1990-1991. 
D)  1981-1982. 
E)  2000-2002. 
A)  2008-2009. 
B)  1974-1975. 
C)  1990-1991. 
D)  1981-1982. 
E)  2000-2002.

Question 5

In the coordination failure model, the 'bad' equilibrium is characterized by a

Accepted Answer

A)  higher real interest rate and a higher price level than the 'good' equilibrium. 
B)  higher real interest rate and a lower price level than the 'good' equilibrium. 
C)  lower real interest rate and a higher price level than the 'good' equilibrium. 
D)  lower real interest rate and a lower price level than the 'good' equilibrium. 
E)  lower real interest rate and a lower aggregate output than the "good" equilibrium. 
A)  higher real interest rate and a higher price level than the 'good' equilibrium. 
B)  higher real interest rate and a lower price level than the 'good' equilibrium. 
C)  lower real interest rate and a higher price level than the 'good' equilibrium. 
D)  lower real interest rate and a lower price level than the 'good' equilibrium. 
E)  lower real interest rate and a lower aggregate output than the "good" equilibrium.

Question 6

According to real business cycle theorists, the tendency of money to lead output may be due to

Accepted Answer

A)  government spending shocks, which lead to later changes in economic activity, and the tendency for bank loans to expand in advance of real activity that will occur at a later date. 
B)  the tendency for bank loans to expand in advance of real activity that will occur at a later date and the Bank of Canada's use of all available information in trying to stabilize the price level. 
C)  the Bank of Canada's use of all available information in trying to stabilize the price level and the Bank of Canada's use of all available information in trying to stabilize the level of economic activity. 
D)  the Bank of Canada's use of all available information in trying to stabilize the level of economic activity and government spending shocks, which lead to later changes in economic activity. 
E)  the Bank of Canada's use of all available information in trying to stabilize business cycle fluctuations and the price level. 
A)  government spending shocks, which lead to later changes in economic activity, and the tendency for bank loans to expand in advance of real activity that will occur at a later date. 
B)  the tendency for bank loans to expand in advance of real activity that will occur at a later date and the Bank of Canada's use of all available information in trying to stabilize the price level. 
C)  the Bank of Canada's use of all available information in trying to stabilize the price level and the Bank of Canada's use of all available information in trying to stabilize the level of economic activity. 
D)  the Bank of Canada's use of all available information in trying to stabilize the level of economic activity and government spending shocks, which lead to later changes in economic activity. 
E)  the Bank of Canada's use of all available information in trying to stabilize business cycle fluctuations and the price level.

Question 7

In the coordination failure model, increasing returns to scale are best explained by strategic

Accepted Answer

A)  mismanagement. 
B)  complementarities. 
C)  substitutabilities. 
D)  collusion. 
E)  government policy making. 
A)  mismanagement. 
B)  complementarities. 
C)  substitutabilities. 
D)  collusion. 
E)  government policy making.

Question 8

A Keynesian model that is consistent with fully flexible wages and prices is based upon the notion of

Accepted Answer

A)  cooperation failures. 
B)  coordination failures. 
C)  collaboration failures. 
D)  decreasing returns to scale. 
E)  strategic complementarities. 
A)  cooperation failures. 
B)  coordination failures. 
C)  collaboration failures. 
D)  decreasing returns to scale. 
E)  strategic complementarities.

Question 9

The key defect of the real business cycle model and the coordination failure model, in explaining what was going on in the 2008-2009 recession, is

Accepted Answer

A)  the failure to recognize important features of the economy. 
B)  the fact that financial factors are too important in these models. 
C)  the absence of a role for government spending. 
D)  too much attention to international trade. 
E)  no effect of central bank actions on the price level in these models. 
A)  the failure to recognize important features of the economy. 
B)  the fact that financial factors are too important in these models. 
C)  the absence of a role for government spending. 
D)  too much attention to international trade. 
E)  no effect of central bank actions on the price level in these models.

Question 10

If the money supply is a sunspot variable in the coordination failure model,

Accepted Answer

A)  money would appear to be non-neutral. 
B)  money would appear to be neutral. 
C)  money would appear to be dictated by politics. 
D)  money would appear to be unpredictable. 
E)  money would appear to be dictated by the private sector. 
A)  money would appear to be non-neutral. 
B)  money would appear to be neutral. 
C)  money would appear to be dictated by politics. 
D)  money would appear to be unpredictable. 
E)  money would appear to be dictated by the private sector.

Question 11

Procyclical total factor productivity (TFP)could be caused by

Accepted Answer

A)  when TFP rises, real GDP falls. 
B)  measurement error. 
C)  the labour input to production is countercyclical. 
D)  lower investment when real GDP is high. 
E)  lower average labour productivity when real GDP is high. 
A)  when TFP rises, real GDP falls. 
B)  measurement error. 
C)  the labour input to production is countercyclical. 
D)  lower investment when real GDP is high. 
E)  lower average labour productivity when real GDP is high.

Question 12

Comovement between nominal and real variables

Accepted Answer

A)  was once a strong regularity in Canadian data, but is no longer. 
B)  was not historically a strong regularity in Canada, but now it is. 
C)  cannot be explained. 
D)  was observed by Friedman and Schwartz after the 2008-2009 recession. 
E)  was observed by Friedman Schwartz in the historical Canadian data. 
A)  was once a strong regularity in Canadian data, but is no longer. 
B)  was not historically a strong regularity in Canada, but now it is. 
C)  cannot be explained. 
D)  was observed by Friedman and Schwartz after the 2008-2009 recession. 
E)  was observed by Friedman Schwartz in the historical Canadian data.

Question 13

The real business cycle model

Accepted Answer

A)  fits the 2008-2009 Canadian data perfectly. 
B)  cannot account for the behaviour of the price level in the 2008-2009 recession. 
C)  cannot account of the behaviour of consumption in the 2008-2009 recession. 
D)  cannot account for the behaviour of investment in the 2008-2009 recession. 
E)  can account for the behaviour of the price level in the 2008-2009 recession. 
A)  fits the 2008-2009 Canadian data perfectly. 
B)  cannot account for the behaviour of the price level in the 2008-2009 recession. 
C)  cannot account of the behaviour of consumption in the 2008-2009 recession. 
D)  cannot account for the behaviour of investment in the 2008-2009 recession. 
E)  can account for the behaviour of the price level in the 2008-2009 recession.

Question 14

An important critique of real business cycle theory is that during a recession,

Accepted Answer

A)  there is overutilization of labour and overutilization of the aggregate capital stock. 
B)  there is underutilization of labour and underutilization of the aggregate capital stock. 
C)  there is overutilization of labour and the wage rate is constant. 
D)  there is underutilization of labour and the real wage decreases. 
E)  there is underutilization of labour and total factor productivity increases. 
A)  there is overutilization of labour and overutilization of the aggregate capital stock. 
B)  there is underutilization of labour and underutilization of the aggregate capital stock. 
C)  there is overutilization of labour and the wage rate is constant. 
D)  there is underutilization of labour and the real wage decreases. 
E)  there is underutilization of labour and total factor productivity increases.

Question 15

A negative total factor productivity shock and a negative monetary shock contributed to the recession of

Accepted Answer

A)  1974-1975. 
B)  1979. 
C)  1981-1982. 
D)  1990-1991. 
E)  2000-2002. 
A)  1974-1975. 
B)  1979. 
C)  1981-1982. 
D)  1990-1991. 
E)  2000-2002.

Question 16

In the real business cycle model, a persistent increase in total factor productivity

Accepted Answer

A)  has no effect on the real interest rate. 
B)  unambiguously increases the real interest rate. 
C)  unambiguously decreases the real interest rate. 
D)  has a theoretically ambiguous effect on the real interest rate. 
E)  has a theoretically ambiguous effect on the nominal interest rate. 
A)  has no effect on the real interest rate. 
B)  unambiguously increases the real interest rate. 
C)  unambiguously decreases the real interest rate. 
D)  has a theoretically ambiguous effect on the real interest rate. 
E)  has a theoretically ambiguous effect on the nominal interest rate.

Question 17

The real business cycle model replicates the key business cycle regularities

Accepted Answer

A)  both qualitatively and quantitatively. 
B)  qualitatively but not quantitatively. 
C)  quantitatively but not qualitatively. 
D)  neither qualitatively nor quantitatively. 
E)  with equal magnitudes of change. 
A)  both qualitatively and quantitatively. 
B)  qualitatively but not quantitatively. 
C)  quantitatively but not qualitatively. 
D)  neither qualitatively nor quantitatively. 
E)  with equal magnitudes of change.

Question 18

The real business cycle model best explains the procyclicality of the nominal money by

Accepted Answer

A)  an unpredictable Bank of Canada. 
B)  exogenous money. 
C)  endogenous money. 
D)  uncorrelated money. 
E)  monetary neutrality. 
A)  an unpredictable Bank of Canada. 
B)  exogenous money. 
C)  endogenous money. 
D)  uncorrelated money. 
E)  monetary neutrality.

Question 19

Real business cycle theory was introduced by

Accepted Answer

A)  Milton Friedman and Robert Lucas. 
B)  Milton Friedman and Anna Schwartz. 
C)  Thomas Cooley and Gary Hansen. 
D)  Finn Kydland and Edward Prescott. 
E)  Robert Lucas. 
A)  Milton Friedman and Robert Lucas. 
B)  Milton Friedman and Anna Schwartz. 
C)  Thomas Cooley and Gary Hansen. 
D)  Finn Kydland and Edward Prescott. 
E)  Robert Lucas.

Question 20

Distinguishing between the real business cycle model and the coordination failure model

Accepted Answer

A)  is impossible. 
B)  requires that we verify whether increasing-returns-to-scale production is important. 
C)  requires that we identify the composition of the labour force. 
D)  is easy. 
E)  has been done, and the real business cycle model has been shown to be superior. 
A)  is impossible. 
B)  requires that we verify whether increasing-returns-to-scale production is important. 
C)  requires that we identify the composition of the labour force. 
D)  is easy. 
E)  has been done, and the real business cycle model has been shown to be superior.

In the coordination failure model, a rightward shift in the labour supply curve

One potential weakness of the coordination failure model as an explanation of business cycles is that

In the coordination failure model, a rightward shift in the labour supply curve

The Keynesian coordination failure model is most relevant for analyzing the recession of

In the coordination failure model, the 'bad' equilibrium is characterized by a

According to real business cycle theorists, the tendency of money to lead output may be due to

In the coordination failure model, increasing returns to scale are best explained by strategic

A Keynesian model that is consistent with fully flexible wages and prices is based upon the notion of

The key defect of the real business cycle model and the coordination failure model, in explaining what was going on in the 2008-2009 recession, is

If the money supply is a sunspot variable in the coordination failure model,

Procyclical total factor productivity (TFP)could be caused by

Comovement between nominal and real variables

The real business cycle model

An important critique of real business cycle theory is that during a recession,

A negative total factor productivity shock and a negative monetary shock contributed to the recession of

In the real business cycle model, a persistent increase in total factor productivity

The real business cycle model replicates the key business cycle regularities

The real business cycle model best explains the procyclicality of the nominal money by

Real business cycle theory was introduced by

Distinguishing between the real business cycle model and the coordination failure model

Introduction

Measurement

Business Cycle Measurement

Consumer and Firm Behaviour: The Work–Leisure Decision and Profit Maximization

A Closed-Economy One-Period Macroeconomic Model

Search and Unemployment

Economic Growth: Malthus and Solow

Income Disparity among Countries and Endogenous Growth

A Two-Period Model: The Consumption–Savings Decision and Credit Markets

Credit Market Imperfections: Credit Frictions, Financial Crises, and Social Security

A Real Intertemporal Model with Investment

A Monetary Intertemporal Model: Money, Banking, Prices, and Monetary Policy

New Keynesian Economics: Sticky Prices

Inflation: Phillips Curves and Neo-Fisherism

International Trade in Goods and Assets

Money in the Open Economy

Money, Inflation, and Banking: A Deeper Look

Filters

Exam 13: Business Cycle Models with Flexible Prices and Wages

In the coordination failure model, a rightward shift in the labour supply curve

One potential weakness of the coordination failure model as an explanation of business cycles is that

In the coordination failure model, a rightward shift in the labour supply curve

The Keynesian coordination failure model is most relevant for analyzing the recession of

In the coordination failure model, the 'bad' equilibrium is characterized by a

According to real business cycle theorists, the tendency of money to lead output may be due to

In the coordination failure model, increasing returns to scale are best explained by strategic

A Keynesian model that is consistent with fully flexible wages and prices is based upon the notion of

The key defect of the real business cycle model and the coordination failure model, in explaining what was going on in the 2008-2009 recession, is

If the money supply is a sunspot variable in the coordination failure model,

Procyclical total factor productivity (TFP)could be caused by

Comovement between nominal and real variables

The real business cycle model

An important critique of real business cycle theory is that during a recession,

A negative total factor productivity shock and a negative monetary shock contributed to the recession of

In the real business cycle model, a persistent increase in total factor productivity

The real business cycle model replicates the key business cycle regularities

The real business cycle model best explains the procyclicality of the nominal money by

Real business cycle theory was introduced by

Distinguishing between the real business cycle model and the coordination failure model

Introduction

Measurement

Business Cycle Measurement

Consumer and Firm Behaviour: The Work–Leisure Decision and Profit Maximization

A Closed-Economy One-Period Macroeconomic Model

Search and Unemployment

Economic Growth: Malthus and Solow

Income Disparity among Countries and Endogenous Growth

A Two-Period Model: The Consumption–Savings Decision and Credit Markets

Credit Market Imperfections: Credit Frictions, Financial Crises, and Social Security

A Real Intertemporal Model with Investment

A Monetary Intertemporal Model: Money, Banking, Prices, and Monetary Policy

New Keynesian Economics: Sticky Prices

Inflation: Phillips Curves and Neo-Fisherism

International Trade in Goods and Assets

Money in the Open Economy

Money, Inflation, and Banking: A Deeper Look

Filters