Exam 10: Classical Business Cycle Analysis

Use the classical (RBC)IS-LM-FE model to show the effects on the economy of a temporary adverse supply shock-for example,an increase 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.

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

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

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.

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

If producers believe that the increase in their relative prices is large relative to the increase in the general price level,then the slope of the short-run aggregate supply curve will be

The distinction between real and nominal shocks is that

Suppose the money demand of individuals and firms depends on what they perceive to be the probabilities that the economy will expand or contract over the following six months.Suppose their money demand is given by the equation L = 0.5Y - 100i + 20z,where z is the probability that the economy is expanding six months in the future.If z = 1,the economy will certainly be in recovery,if z = 0,the economy will certainly be in recession,and for z between 0 and 1 there is some uncertainty about the future state of the economy.Use a classical (RBC)model of the economy.If the Fed moves the money supply to target the price level,how does the money supply relate to the expected future state of the economy? Is this an example of reverse causation?

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

Measures of the Solow residual show it to be

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.

The misperceptions theory was originally proposed by ________ and rigorously formulated by ________

How is the Solow residual measured? What problems arise in its measurement when resource utilization varies over the business cycle? What implications do these measurement issues have for evidence supporting the RBC model?

Why do many economists believe that money affects output? What is the empirical evidence in support of that belief?

Assuming that money is neutral,an increase in the nominal money supply would cause

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

Assuming money neutrality in the classical model,a 10% increase in the nominal money supply would cause

The term household production refers to

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

If producers believe that the increase in their relative prices is small relative to the increase in the general price level,then the slope of the short-run aggregate supply curve will be