Question 1

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

Accepted Answer

A)  real wages to fall. 
B)  the price level to rise. 
C)  real interest rates to rise. 
D)  the output demand curve shifting less than the output supply curve. 
E)  the money supply to shift right. 
A)  real wages to fall. 
B)  the price level to rise. 
C)  real interest rates to rise. 
D)  the output demand curve shifting less than the output supply curve. 
E)  the money supply to shift right.

Question 2

Explain what the policy implications of the real business cycle model are. Do you think the real business cycle model leaves out important features of the economy, which causes its policy conclusions to be questionable? Discuss.

Accepted Answer

The basic real business cycle model impl

Question 3

According to real business cycle theorists, an increase in total factor productivity could lead to an increase in the nominal money supply due to

Accepted Answer

A)  the cyclical behaviour of tax collections and attempts by the Bank of Canada to stabilize real output. 
B)  Bank of Canada attempts to stabilize real output and the price level. 
C)  Bank of Canada attempts to stabilize the price level and banking sector expansion of deposit money. 
D)  banking sector expansion of deposit money and the cyclical behaviour of tax collections. 
E)  Bank of Canada attempts to stabilize business cycle fluctuations. 
A)  the cyclical behaviour of tax collections and attempts by the Bank of Canada to stabilize real output. 
B)  Bank of Canada attempts to stabilize real output and the price level. 
C)  Bank of Canada attempts to stabilize the price level and banking sector expansion of deposit money. 
D)  banking sector expansion of deposit money and the cyclical behaviour of tax collections. 
E)  Bank of Canada attempts to stabilize business cycle fluctuations.

Question 4

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

Accepted Answer

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

Question 5

The observed correlation between the price level and real GDP may be low because

Accepted Answer

A)  consumption is procyclical. 
B)  the central bank acts to target the price level. 
C)  money demand does not depend on income. 
D)  money demand increases when the nominal interest rate rises. 
E)  Milton Friedman has passed away. 
A)  consumption is procyclical. 
B)  the central bank acts to target the price level. 
C)  money demand does not depend on income. 
D)  money demand increases when the nominal interest rate rises. 
E)  Milton Friedman has passed away.

Question 6

A government policy that is consistent with real business cycle theory would be for

Accepted Answer

A)  government to vary its spending in response to shocks to total factor productivity. 
B)  the monetary authority to expand and contract the nominal money supply in response to shocks to total factor productivity. 
C)  government to smooth out tax distortions over time. 
D)  government to vary its lump-sum tax collections in response to changes in total factor productivity. 
E)  government to vary its spending and taxation decreases in response to shocks that affect the price level. 
A)  government to vary its spending in response to shocks to total factor productivity. 
B)  the monetary authority to expand and contract the nominal money supply in response to shocks to total factor productivity. 
C)  government to smooth out tax distortions over time. 
D)  government to vary its lump-sum tax collections in response to changes in total factor productivity. 
E)  government to vary its spending and taxation decreases in response to shocks that affect the price level.

Question 7

In the coordination failure model, business cycles can be caused by events that are completely unrelated to economic fundamentals such as

Accepted Answer

A)  climate. 
B)  business and consumer confidence. 
C)  preferences, endowments and technology. 
D)  countercyclical government policy. 
E)  politics. 
A)  climate. 
B)  business and consumer confidence. 
C)  preferences, endowments and technology. 
D)  countercyclical government policy. 
E)  politics.

Question 8

Two business cycle facts that are less easily explained by the real business cycle are that

Accepted Answer

A)  money and prices are both acyclical. 
B)  the nominal money supply is procyclical and leads the business cycle. 
C)  the nominal money supply is procyclical and is coincident with the business cycle. 
D)  the nominal money supply is procyclical and lags the business cycle. 
E)  the nominal money supply is procyclical and is a leading indicator. 
A)  money and prices are both acyclical. 
B)  the nominal money supply is procyclical and leads the business cycle. 
C)  the nominal money supply is procyclical and is coincident with the business cycle. 
D)  the nominal money supply is procyclical and lags the business cycle. 
E)  the nominal money supply is procyclical and is a leading indicator.

Question 9

The behaviour of the Solow residual suggests that when current total factor productivity increases

Accepted Answer

A)  it becomes more difficult to predict future total factor productivity. 
B)  future total factor productivity is also likely to increase. 
C)  such increases are temporary, so we can draw no conclusions about the likely behaviour of future total factor productivity. 
D)  future total factor productivity is likely to decrease. 
E)  are typically temporary and have no influence on future levels of aggregate real GDP. 
A)  it becomes more difficult to predict future total factor productivity. 
B)  future total factor productivity is also likely to increase. 
C)  such increases are temporary, so we can draw no conclusions about the likely behaviour of future total factor productivity. 
D)  future total factor productivity is likely to decrease. 
E)  are typically temporary and have no influence on future levels of aggregate real GDP.

Question 10

An important critique of real business cycle theory is the belief that cyclical movements in total factor productivity

Accepted Answer

A)  rarely occur. 
B)  may, in part, be an artifact of measurement error. 
C)  lead to imperceptible changes in labour demand. 
D)  are too small to account for the size of fluctuations in real GDP. 
E)  does not explain the overall fluctuations in the business cycle. 
A)  rarely occur. 
B)  may, in part, be an artifact of measurement error. 
C)  lead to imperceptible changes in labour demand. 
D)  are too small to account for the size of fluctuations in real GDP. 
E)  does not explain the overall fluctuations in the business cycle.

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

Explain what the policy implications of the real business cycle model are. Do you think the real business cycle model leaves out important features of the economy, which causes its policy conclusions to be questionable? Discuss.

According to real business cycle theorists, an increase in total factor productivity could lead to an increase in the nominal money supply due to

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

The observed correlation between the price level and real GDP may be low because

A government policy that is consistent with real business cycle theory would be for

In the coordination failure model, business cycles can be caused by events that are completely unrelated to economic fundamentals such as

Two business cycle facts that are less easily explained by the real business cycle are that

The behaviour of the Solow residual suggests that when current total factor productivity increases

An important critique of real business cycle theory is the belief that cyclical movements in total factor productivity

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 real business model, a persistent increase in total factor productivity causes

Explain what the policy implications of the real business cycle model are. Do you think the real business cycle model leaves out important features of the economy, which causes its policy conclusions to be questionable? Discuss.

According to real business cycle theorists, an increase in total factor productivity could lead to an increase in the nominal money supply due to

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

The observed correlation between the price level and real GDP may be low because

A government policy that is consistent with real business cycle theory would be for

In the coordination failure model, business cycles can be caused by events that are completely unrelated to economic fundamentals such as

Two business cycle facts that are less easily explained by the real business cycle are that

The behaviour of the Solow residual suggests that when current total factor productivity increases

An important critique of real business cycle theory is the belief that cyclical movements in total factor productivity

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