Question 1

What is assumed about market structures in the DSGE model? What is the result of this assumption?

Accepted Answer

Almost all markets are assumed to be highly competitive in the DSGE model.This means that the market forces of supply and demand are the primary determinants of price.This also allows for a general equilibrium,where all of the markets are simultaneously in equilibrium.

Question 2

When your author says that New Classical macroeconomics was not really macroeconomics at all,what does he mean?

Accepted Answer

He said that New Classical macroeconomics was not really macroeconomics,but the microeconomics of an entire economy.He said this to emphasize the fact that New Classical macroeconomists were attempting to build a model of the entire economy based on a proper theoretical foundation of the decision making behavior of individuals.Specifically,they focused on the decision making of a single individual.

Question 3

What is the Lucas critique?

Accepted Answer

The Lucas critique points out that because government policies can affect the behavior of individuals,historical data can lead to misleading predictions about the impact of a new policy.

Question 4

What are two examples of the policy recommendations made by economists who favor the use of the DSGE model in crafting policy?

Accepted Answer

Chari and Kehoe,who advocate using the D

Question 5

Why do you think modern macroeconomist Robert Lucas said that he would resign if he were appointed to the President's Council of Economic Advisers?

Accepted Answer

Modern macroeconomics models are often s

Question 6

Give two reasons that the individual described by the DSGE model is assumed to live forever.

Accepted Answer

Having the individual live for multiple

Question 7

What is the time-inconsistency/credibility problem?

Accepted Answer

The time-inconsistency/credibility probl

Question 8

Why is the collapse of the Tacoma Narrows Bridge relevant to modern macroeconomics?

Accepted Answer

In the late 1930s,engineers,using the be

Question 9

What modern macro approach is best suited for taking into consideration the interactive feedback effects ignored by the DSGE model?

Accepted Answer

Complex systems macro models can deal wi

Question 10

How do economists solve very complicated models such as multiple-level pattern-finding learning models?

Accepted Answer

Many of these models are too hard to sol

Question 11

What problem regarding the assumed relationship between consumption and income did the macro models of the 1960s begin to reveal? How was this problem addressed?

Accepted Answer

The macro models revealed that the relat

Question 12

Summarize the basic properties of the DSGE model.

Accepted Answer

In Robert Solow's words,it is "a model i

Question 13

What kind of expectations would lead to the following price behaviors?
a.  
b.  
c.

Accepted Answer

a.This pricing behavior is likely the re

Question 14

What is New Classical macroeconomics?

Accepted Answer

New Classical macroeconomics is an appro

Question 15

What historical event led to the emergence of the Keynesian model of the macroeconomy?

Accepted Answer

The Great Depression was hard

Question 16

What is the difference between the standard macro model and the modern macro scientific model?

Accepted Answer

The models (such as the AS/AD and multip

Question 17

According to the complex systems approach to macro economics and its dynamic assumptions of learning procedures,what will cause fluctuations in the aggregate economy?

Accepted Answer

In these models,fluctuations i

Question 18

What are three policy implications of the DSGE model? Give an example for each.

Accepted Answer

The DSGE model reveals three potential p

Question 19

Using the graph below,demonstrate how rational price expectations on the part of suppliers will impact a market in which the demand curve shifts to the right.How quickly will the market reach equilibrium?

Accepted Answer

Because suppliers anticipate t

Question 20

What do the Ricardian equivalence problem and the time-inconsistency/credibility problem have in common?

Accepted Answer

Both of them rely on the ratio

Exam 12: Thinking Like a Modern Macroeconomist

What is assumed about market structures in the DSGE model? What is the result of this assumption?

When your author says that New Classical macroeconomics was not really macroeconomics at all,what does he mean?

What is the Lucas critique?

What are two examples of the policy recommendations made by economists who favor the use of the DSGE model in crafting policy?

Why do you think modern macroeconomist Robert Lucas said that he would resign if he were appointed to the President's Council of Economic Advisers?

Give two reasons that the individual described by the DSGE model is assumed to live forever.

What is the time-inconsistency/credibility problem?

Why is the collapse of the Tacoma Narrows Bridge relevant to modern macroeconomics?

What modern macro approach is best suited for taking into consideration the interactive feedback effects ignored by the DSGE model?

How do economists solve very complicated models such as multiple-level pattern-finding learning models?

What problem regarding the assumed relationship between consumption and income did the macro models of the 1960s begin to reveal? How was this problem addressed?

Summarize the basic properties of the DSGE model.

What kind of expectations would lead to the following price behaviors? a. b. c.

What is New Classical macroeconomics?

What historical event led to the emergence of the Keynesian model of the macroeconomy?

What is the difference between the standard macro model and the modern macro scientific model?

According to the complex systems approach to macro economics and its dynamic assumptions of learning procedures,what will cause fluctuations in the aggregate economy?

What are three policy implications of the DSGE model? Give an example for each.

Using the graph below,demonstrate how rational price expectations on the part of suppliers will impact a market in which the demand curve shifts to the right.How quickly will the market reach equilibrium?

What do the Ricardian equivalence problem and the time-inconsistency/credibility problem have in common?

Economics and Economic Reasoning

The Production Possibility Model, trade, and Globalization

Economic Institutions

Supply and Demand

Using Supply and Demand

Thinking Like a Modern Economist

Economic Growth, business Cycles, unemployment, and Inflation

Measuring the Aggregate Economy

Growth,productivity,and the Wealth of Nations

The Aggregate Demand-Aggregate Supply Model

The Multiplier Model

The Financial Sector and the Economy

Monetary Policy

Financial Crises, panics, and Macroeconomic Policy

Inflation and the Phillips Curve

Deficits and Debt

The Modern Fiscal Policy Dilemma

International Trade Policy, comparative Advantage, and Outsourcing

International Financial Policy

Macro Policy in a Global Setting

Macro Policies in Developing Countries

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