Exam 10: Classical Business Cycle Analysis

A classical economy is described by the following equations: C^d = 500 + 0.5(Y - T)- 100r. I^d = 350 - 100r. L = 0.5Y - 200i. $\bar{\gamma}$ = 1850. π^e = 0.05. Government spending and taxes are equal where T = G = 200.The nominal money supply M = 3560. (a)What are the equilibrium values of the real interest rate,the price level,consumption,and investment? (b)Suppose an economic shock increases desired investment by 10,so it is now I^d = 360 - 100r.How does this affect the equilibrium values of the real interest rate,the price level,consumption,and investment? (c)Returning to the initial situation in part (a),suppose an economic shock increases desired consumption by 10,so it is now C^d = 510 + 0.5 (Y - T)- 100r.How does this affect the equilibrium values of the real interest rate,the price level,consumption,and investment?

According to the misperceptions theory,the amount by which producers increase their output when the general price level rises depends on

According to the misperceptions theory,when the aggregate price level is higher than expected,

Critics of the RBC approach argue that it's hard to find productivity shocks large enough to cause business cycles.What is the RBC counterargument to this criticism?

The theory of rational expectations suggests that

The primary reason why the Fed cannot systematically surprise the public with its monetary policy is

According to classical economists,in recessions,the government should

Use the classical IS-LM model to show the effects of a temporary decrease in government purchases on the equilibrium levels of output,the real interest rate,employment,the real wage,and the price level.

The theory that real shocks to the economy are the primary cause of business cycles is

According to the misperceptions theory,when the price level falls below the expected price level

The primary reason that short-lived shocks can have long-run effects is

The distinction between real and nominal shocks is that

Classical economists would cite all of the following as reasons why the government cannot smooth out the business cycle except that

According to the misperceptions theory,an anticipated decline in the money supply leads to a shift of the AD curve ________ and a shift of the SRAS curve ________.

Braun and Evans found that

Use the classical (RBC)IS-LM-FE model to show the effects on the economy of a temporary beneficial supply shock; for example,a decrease in the price of oil.You should show the impact on the real wage,employment,output,the real interest rate,consumption,investment,and the price level.

According to classical economists,unemployment exists because

Suppose the economy's production function is Y = A(300N - N²).The marginal product of labor is MPN = A(300 - 2N).Suppose that A = 10.The supply of labor is NS = 0.05w + 0.005G. (a)If G is 26,000,what are the real wage,employment,and output? (b)If G rises to 26,400,what are the real wage,employment,and output? (c)If G falls to 25,600,what are the real wage,employment,and output? (d)In cases (b)and (c),what is the government purchases multiplier; that is,what is the change in output divided by the change in government purchases?

Which of the following statements is true about the misperceptions theory?

Why doesn't stabilization policy work,according to economists using the misperceptions theory?