Exam 11: Classical Business Cycle Analysis: Market-Clearing Macroeconomics

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

The basic classical model can account for the procyclical behaviour of money if there

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

An economist takes a survey of people on the street and asks them for forecasts of inflation over the next year. He takes this survey every month for several years, and finds that people's forecasts of inflation are biased. People seem to make systematic errors in forecasting inflation. Also, their forecast errors are correlated: if their forecast was too high one month, it also tended to be too high the next month. Is this evidence against rational expectations?

Briefly explain the rational expectation hypothesis. What are the basic assumptions of the hypothesis? What are the implications of the rational expectation hypothesis for the monetary policy effects on output? Do empirical studies support the idea of rational expectations?

By real shock, economists mean

Which of the following is an example of a real shock?

Real business cycle theory is unable to predict that

An adverse supply shock would directly ________ labour productivity by changing the amount of output that can be produced with any given amount of capital and labour. It would also indirectly ________ average labour productivity through changes in the level of employment.

The most common measure of productivity shocks is known as

The Solow residual is

Which of the following equations is most likely to represent short-run aggregate supply according to the misperceptions theory?

Which of the following is an example of a nominal shock?

When, because of hiring and firing costs, firms retain workers in a recession that they would otherwise lay off, there is said to be

According to the misperceptions theory, short-lived shocks may have long-term effects on the economy because of

A business cycle fact that does not seem to be consistent with the simple RBC theory is that

Friedman and Schwarz argue that money is not neutral because

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

Suppose the economy's production function is Y = A(300N - N²). The marginal product of labour is MPN = A(300 - 2N). Suppose that A = 10. The supply of labour 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?

What do RBC economists mean by the term calibration?