Question 1

Which of the following is true of real business­cycle models?​

Accepted Answer

A) According to real business-cycle models the demand shocks are responsible for the business cycles. 
B) According to real business-cycle models government intervention is responsible for business cycles. 
C) According to real business-cycle models fluctuations in total factor productivity are responsible for business cycles. 
D) ​According to real business­cycle models erratic monetary policies are responsible for business cycles. 
A) According to real business-cycle models the demand shocks are responsible for the business cycles. 
B) According to real business-cycle models government intervention is responsible for business cycles. 
C) According to real business-cycle models fluctuations in total factor productivity are responsible for business cycles. 
D) ​According to real business­cycle models erratic monetary policies are responsible for business cycles. C

Question 2

In the two-period model, suppose a household's income in the first period is $30,000, income in the second period is $40,000, and the real interest rate is 20 percent.Draw a diagram showing the budget constraint.Now, suppose the real interest rate rises to 25 percent.Draw the new budget constraint.For the budget constraints you have drawn, be sure to show the values of the intercepts on each axis.Show your work.

Accepted Answer

Initial situation: intercept for first-period consumption axis = 30,000 + 40,000/1.2 = 63,333; intercept for second-period consumption axis = 6,000 + 30,000 + 40,000 = 76,000.

New situation: intercept for first-period consumption axis = 30,000 + 40,000/1.25 = 62,000; intercept for second-period consumption axis = 7,500 + 30,000 + 40,000 = 77,500.

Budget constraint rotates clockwise, from AB to CD.

Question 3

In the two-period model, an increase in income in period 1 causes the budget constraint to

Accepted Answer

A) shift to the left in a parallel fashion. 
B) shift to the right in a parallel fashion. 
C) rotate in a clockwise direction along the horizontal axis. 
D) rotate in a counterclockwise direction along the vertical axis. 
A) shift to the left in a parallel fashion. 
B) shift to the right in a parallel fashion. 
C) rotate in a clockwise direction along the horizontal axis. 
D) rotate in a counterclockwise direction along the vertical axis. B

Question 4

In the two-period model, an increase in the real interest rate causes the budget constraint to

Accepted Answer

A) shift to the left in a parallel fashion. 
B) shift to the right in a parallel fashion. 
C) rotate in a clockwise direction. 
D) rotate in a counterclockwise direction. 
A) shift to the left in a parallel fashion. 
B) shift to the right in a parallel fashion. 
C) rotate in a clockwise direction. 
D) rotate in a counterclockwise direction.

Question 5

A simple statistical model that assumes that the value of a variable at any date depends just on its own past values plus an error term is known as a

Accepted Answer

A) vector autoregression (VAR) model. 
B) univariate time-series model. 
C) structural VAR model. 
D) structural equilibrium model. 
A) vector autoregression (VAR) model. 
B) univariate time-series model. 
C) structural VAR model. 
D) structural equilibrium model.

Question 6

In RBC models, the government

Accepted Answer

A) is the main source of business cycles. 
B) plays little role in the business cycle. 
C) can affect the business cycle through predictable fiscal policy. 
D) can affect the business cycle through predictable monetary policy. 
A) is the main source of business cycles. 
B) plays little role in the business cycle. 
C) can affect the business cycle through predictable fiscal policy. 
D) can affect the business cycle through predictable monetary policy.

Question 7

The view that a change in the timing of taxes does not affect people's consumption is known as the

Accepted Answer

A) tax equalization postulate. 
B) fiscal policy equality law. 
C) Lucas critique. 
D) Ricardian equivalence proposition. 
A) tax equalization postulate. 
B) fiscal policy equality law. 
C) Lucas critique. 
D) Ricardian equivalence proposition.

Question 8

In the two-period model, a decrease in the real interest rate causes the budget constraint to

Accepted Answer

A) shift to the left in a parallel fashion. 
B) shift to the right in a parallel fashion. 
C) rotate in a clockwise direction. 
D) rotate in a counterclockwise direction. 
A) shift to the left in a parallel fashion. 
B) shift to the right in a parallel fashion. 
C) rotate in a clockwise direction. 
D) rotate in a counterclockwise direction.

Question 9

People's beliefs about future economic variables are known as

Accepted Answer

A) microeconomic foundations. 
B) real interest rates. 
C) expectations. 
D) permutations. 
A) microeconomic foundations. 
B) real interest rates. 
C) expectations. 
D) permutations.

Question 10

In the two-period model, suppose a household's income in the first period is $60,000, income in the second period is $100,000, and the real interest rate is 50 percent.Draw a diagram showing the budget constraint.Now, suppose the household's income in the second period increased to $120,000.Draw the new budget constraint.For the budget constraints you have drawn, be sure to show the values of the intercepts on each axis.Show your work.

Accepted Answer

Initial situation: intercept for first-p

Question 11

In a real business cycle (RBC) model,

Accepted Answer

A) agents are heterogeneous. 
B) agents do not have rational expectations. 
C) economic growth and business cycles are explained by two different variables. 
D) shocks to productivity are the sole source of the business cycle. 
A) agents are heterogeneous. 
B) agents do not have rational expectations. 
C) economic growth and business cycles are explained by two different variables. 
D) shocks to productivity are the sole source of the business cycle.

Question 12

Under which of the following situations can fiscal policy affect people's expectations​?

Accepted Answer

A) ​If the interest rate on borrowing is higher than the interest rate on lending 
B) ​If the interest rate on lending is more than the interest rate on borrowing 
C) ​If the interest rate on borrowing and lending are the same 
D) ​If the interest rate on lending changes more than a change in the interest rate on borrowing 
A) ​If the interest rate on borrowing is higher than the interest rate on lending 
B) ​If the interest rate on lending is more than the interest rate on borrowing 
C) ​If the interest rate on borrowing and lending are the same 
D) ​If the interest rate on lending changes more than a change in the interest rate on borrowing

Question 13

A model that focuses on what is happening at just one point in time is known as

Accepted Answer

A) a dynamic model. 
B) a static model. 
C) a general-equilibrium model. 
D) a partial-equilibrium model. 
A) a dynamic model. 
B) a static model. 
C) a general-equilibrium model. 
D) a partial-equilibrium model.

Question 14

Precautionary savings is

Accepted Answer

A) forced savings, which occurs when the government implicitly saves for people through the Social Security system. 
B) additional savings people make in order to profit from the high returns to the stock market. 
C) savings made by the poor. 
D) the extra amount of savings a household maintains because of uncertainty about its future income. 
A) forced savings, which occurs when the government implicitly saves for people through the Social Security system. 
B) additional savings people make in order to profit from the high returns to the stock market. 
C) savings made by the poor. 
D) the extra amount of savings a household maintains because of uncertainty about its future income.

Question 15

A model in which actions that occur at one time affect what happens at other times is known as

Accepted Answer

A) a dynamic model. 
B) a static model. 
C) a general-equilibrium model. 
D) a partial-equilibrium model. 
A) a dynamic model. 
B) a static model. 
C) a general-equilibrium model. 
D) a partial-equilibrium model.

Question 16

In the two-period model, a lower real interest rate

Accepted Answer

A) reduces the present value of income. 
B) causes the budget constraint to rotate in a clockwise direction. 
C) makes households that had initially planned to save better off. 
D) makes households that had initially planned to borrow better off. 
A) reduces the present value of income. 
B) causes the budget constraint to rotate in a clockwise direction. 
C) makes households that had initially planned to save better off. 
D) makes households that had initially planned to borrow better off.

Question 17

In a structural VAR, a restriction that describes the impact of the current-period value of one variable on the current-period value of another variable is known as a restriction.

Accepted Answer

A) contemporaneous 
B) long-run 
C) short-run 
D) structural 
A) contemporaneous 
B) long-run 
C) short-run 
D) structural

Question 18

In the two-period model, suppose a household's income in the first period is $40,000, income in the second period is $50,000, and the real interest rate is 25 percent.A sudden shock leads to an increase in the household's income in the first period to $45,000 and a decrease in the household's income in the second period to $43,750.The household is _____in the new situation.

Accepted Answer

A) better off 
B) worse off 
C) equally well off 
D) possibly better off and possibly worse off 
A) better off 
B) worse off 
C) equally well off 
D) possibly better off and possibly worse off

Question 19

A disadvantage of univariate time-series models and VARs is

Accepted Answer

A) they cannot be used easily to analyze the effects of monetary policy. 
B) they are based on classical, rather than Keynesian, economic theory. 
C) they provide poor forecasts. 
D) they are not based on data. 
A) they cannot be used easily to analyze the effects of monetary policy. 
B) they are based on classical, rather than Keynesian, economic theory. 
C) they provide poor forecasts. 
D) they are not based on data.

Question 20

DSGE models that contain many different types of households and firms are known as

Accepted Answer

A) heterogeneous-agent models. 
B) homogeneous-agent models. 
C) dynamic models. 
D) multi-layered models. 
A) heterogeneous-agent models. 
B) homogeneous-agent models. 
C) dynamic models. 
D) multi-layered models.

Which of the following is true of real businesscycle models?

In the two-period model, an increase in income in period 1 causes the budget constraint to

In the two-period model, an increase in the real interest rate causes the budget constraint to

A simple statistical model that assumes that the value of a variable at any date depends just on its own past values plus an error term is known as a

In RBC models, the government

The view that a change in the timing of taxes does not affect people's consumption is known as the

In the two-period model, a decrease in the real interest rate causes the budget constraint to

People's beliefs about future economic variables are known as

In a real business cycle (RBC) model,

Under which of the following situations can fiscal policy affect people's expectations?

A model that focuses on what is happening at just one point in time is known as

Precautionary savings is

A model in which actions that occur at one time affect what happens at other times is known as

In the two-period model, a lower real interest rate

In a structural VAR, a restriction that describes the impact of the current-period value of one variable on the current-period value of another variable is known as a restriction.

A disadvantage of univariate time-series models and VARs is

DSGE models that contain many different types of households and firms are known as

Money and the Financial System

The Financial System and the Economy

Money and Payments

Present Value

The Structure of Interest Rates

Real Interest Rates

Stocks and Other Assets

How Banks Work

Governments Role in Banking

Economics Growth and Business Cycles

Modeling Money

The Aggregate-Demandaggregate-Supply Model

Economic Interdependence

The Federal Reserve System

Monetary Control

Monetary Policy: Goals and Tradeoffs

Rules for Monetary Policy

Filters

Exam 13: Modern Macroeconomic Models

Which of the following is true of real business­cycle models?​

In the two-period model, an increase in income in period 1 causes the budget constraint to

In the two-period model, an increase in the real interest rate causes the budget constraint to

A simple statistical model that assumes that the value of a variable at any date depends just on its own past values plus an error term is known as a

In RBC models, the government

The view that a change in the timing of taxes does not affect people's consumption is known as the

In the two-period model, a decrease in the real interest rate causes the budget constraint to

People's beliefs about future economic variables are known as

In a real business cycle (RBC) model,

Under which of the following situations can fiscal policy affect people's expectations​?

A model that focuses on what is happening at just one point in time is known as

Precautionary savings is

A model in which actions that occur at one time affect what happens at other times is known as

In the two-period model, a lower real interest rate

In a structural VAR, a restriction that describes the impact of the current-period value of one variable on the current-period value of another variable is known as a restriction.

A disadvantage of univariate time-series models and VARs is

DSGE models that contain many different types of households and firms are known as

Money and the Financial System

The Financial System and the Economy

Money and Payments

Present Value

The Structure of Interest Rates

Real Interest Rates

Stocks and Other Assets

How Banks Work

Governments Role in Banking

Economics Growth and Business Cycles

Modeling Money

The Aggregate-Demandaggregate-Supply Model

Economic Interdependence

The Federal Reserve System

Monetary Control

Monetary Policy: Goals and Tradeoffs

Rules for Monetary Policy

Filters

Which of the following is true of real businesscycle models?

Under which of the following situations can fiscal policy affect people's expectations?