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

When RBC economists compare the correlations in their models to the data, what are they looking at?

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

One important reason why the Solow residual may be strongly procyclical even if the actual technology used in production doesn't change is that

The distinction between real and nominal shocks is that

Analyze the short-run and long-run effects of an unanticipated decrease in the money supply in the misperceptions model. Tell what happens to output, the price level, and the expected price level in both the short run and long run.

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

The formula Y/(K^aN^1-a) provides a calculation of

According to classical economists, the government should increase government purchases when

If you expect a general price increase of 5% this year and the price of the hamburgers you sell increases by 10%, you would conclude that the relative price of your good has

According to classical economists, the increase in unemployment in recessions is caused by

Suppose the economy is characterized by the following equations: IS curve: r = 10.10 - 0.002Y LM curve: M/P = Y - 250(r + π^e) SRAS curve: Y = Y + 50(P - P^e) The nominal money supply is M = 9,900, expected inflation is π^e = .10, and full-employment output is Y = 5000. a. If the economy begins in general equilibrium, what are the equilibrium values of the price level, output, and the real interest rate? b. If the expected price level is the price level you found in part (a), what happens to the price level, output, and the real interest rate in the short run if there's an unanticipated decrease in the nominal money supply to 7368.75? c. If the expected price level is the price level you found in part (a), what happens to the price level, output, and the real interest rate in the short run if there's an unanticipated increase in the nominal money supply to 12,468.75?

According to the misperceptions theory, after an unanticipated increase in the money supply has occurred, the SRAS must shift to the ________ to restore general equilibrium; as it does so, the price level ________.

According to the misperceptions theory, an anticipated 10% decrease in the money supply leads to a short-run reduction in the price level of

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

The Central Bank had announced that it would allow M2 to grow by 8% this year, and M2 did grow by 8% this year. You would not expect

If producers have imperfect information about the general price level and sometimes misinterpret changes in the general price level as changes in relative prices, then

In the classical model, a temporary decrease in government spending would cause a decrease in

According to classical economists, unemployment rises in recessions due to an increase in ________ unemployment, not ________ unemployment.

Given data on capital (K), labour (N), and output (Y), and estimates of capital's share of output (a), the Solow residual is measured as

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.