Question 1

In DGSE models, the dynamics of how macro variables react to a policy shock is called:

Accepted Answer

A)  the estimated coefficient. 
B)  transition dynamics. 
C)  an impulse response function. 
D)  a policy response function. 
E)  Ricardian equivalence. 
A)  the estimated coefficient. 
B)  transition dynamics. 
C)  an impulse response function. 
D)  a policy response function. 
E)  Ricardian equivalence.

Question 2

When taxes are included in the stylized DSGE model, with Cobb-Douglas production, labor demand is given by   
.

Accepted Answer

A) True 
 B)False

Question 3

With a nominal price rigidity, firms cannot change the market clearing price.

Accepted Answer

A) True 
 B)False

Question 4

Refer to the following figure when answering the following questions.
Figure 15.3: The Labor Market  
-In the stylized DSGE model for the labor market displayed in Figure 15.3, with sticky prices, the Federal Reserve's desire to expand the economy would move the labor market from:

Accepted Answer

A)    . 
B)    . 
C)    . 
D)    . 
E)    . 
A)    . 
B)    . 
C)    . 
D)    . 
E)    .

Question 5

The reason inflation ________ in the Smets-Wouters DSGE model if TFP rises is because ________.

Accepted Answer

A)  falls; TFP increases potential output, which expands supply 
B)  rises; inflationary expectations rise 
C)  rises; aggregate demand rises with higher incomes 
D)  stays the same; of money neutrality 
E)  falls; real interest rates adjust to equal the marginal product of capital 
A)  falls; TFP increases potential output, which expands supply 
B)  rises; inflationary expectations rise 
C)  rises; aggregate demand rises with higher incomes 
D)  stays the same; of money neutrality 
E)  falls; real interest rates adjust to equal the marginal product of capital

Question 6

In the Smets-Wouters DSGE model presented in the text, contractionary monetary policy has the largest impact on:

Accepted Answer

A)  consumption. 
B)  real GDP. 
C)  hours worked. 
D)  unemployment. 
E)  inflation. 
A)  consumption. 
B)  real GDP. 
C)  hours worked. 
D)  unemployment. 
E)  inflation.

Question 7

The fact that ________ almost as sharply as GDP in the Smets-Wouters DSGE model ________.

Accepted Answer

A)  inflation rises; supports the Phillips curve analysis 
B)  employment falls; provides insight into the nature of Okun's law 
C)  consumption rises; contradicts consumption smoothing 
D)  interest rates fluctuate; demonstrates that real interest rates are constant 
E)  tax revenues increase; reinforces Ricardian equivalence 
A)  inflation rises; supports the Phillips curve analysis 
B)  employment falls; provides insight into the nature of Okun's law 
C)  consumption rises; contradicts consumption smoothing 
D)  interest rates fluctuate; demonstrates that real interest rates are constant 
E)  tax revenues increase; reinforces Ricardian equivalence

Question 8

Refer to the following figure when answering the following questions.
Figure 15.3: The Labor Market  
-In the stylized DSGE model for the labor market displayed in Figure 15.3, with sticky prices, a monetary contraction would move the labor market from ________ because ________.

Accepted Answer

A)    of   , and therefore real GDP falls 
B)    nominal wages and inflationary expectations rise 
C)    real wages fall, so workers supply less labor 
D)    future consumption falls, increasing labor supply 
E)    the labor market clears, but output markets do not 
A)    of   , and therefore real GDP falls 
B)    nominal wages and inflationary expectations rise 
C)    real wages fall, so workers supply less labor 
D)    future consumption falls, increasing labor supply 
E)    the labor market clears, but output markets do not

Question 9

Which of the following could be a NEGATIVE TFP shock?

Accepted Answer

A)  a hurricane 
B)  lower taxes 
C)  a better court system 
D)  lower tariff rates 
E)  a low debt-to-GDP ratio 
A)  a hurricane 
B)  lower taxes 
C)  a better court system 
D)  lower tariff rates 
E)  a low debt-to-GDP ratio

Question 10

In the DSGE framework, prospects for a "fiscal cliff" in the fall of 2012 increases ________ about the future leading firms to ________, which would ________.

Accepted Answer

A)  uncertainty; delay investment; slow economic activity 
B)  federal surpluses; hire more workers; decrease unemployment 
C)  state spending; reduce pensions; reduce the labor supply 
D)  tax rates; increase investment; improve TFP 
E)  interest rates; reduce investment; lead to better long-term growth 
A)  uncertainty; delay investment; slow economic activity 
B)  federal surpluses; hire more workers; decrease unemployment 
C)  state spending; reduce pensions; reduce the labor supply 
D)  tax rates; increase investment; improve TFP 
E)  interest rates; reduce investment; lead to better long-term growth

Question 11

Refer to the following figure when answering the following questions.
Figure 15.2: The Labor Market  
-In the stylized DSGE model for the labor market displayed in Figure 15.2, the line marked   is due to which of the following?
i. Cyclical unemployment
ii. Sticky prices
iii. Sticky wages

Accepted Answer

A)  iii 
B)  i and ii 
C)  ii 
D)  i 
E)  ii and iii 
A)  iii 
B)  i and ii 
C)  ii 
D)  i 
E)  ii and iii

Question 12

What makes DSGE models difficult to solve is:

Accepted Answer

A)  the forward-looking consumption decision. 
B)  determining the "right" real interest rate. 
C)  mathematically solving the utility maximization problem. 
D)  solving the permanent-income hypothesis. 
E)  parameterizing the model. 
A)  the forward-looking consumption decision. 
B)  determining the "right" real interest rate. 
C)  mathematically solving the utility maximization problem. 
D)  solving the permanent-income hypothesis. 
E)  parameterizing the model.

Question 13

The three components of any DSGE model are:

Accepted Answer

A)  endogenous variables, shocks, and economic "features." 
B)  TFP, the Solow residual, and Cobb-Douglas production. 
C)  labor supply, demand, and the real wage. 
D)  exogenous variables, endogenous variables, and normal variables. 
E)  interest rates, inflation, and unemployment. 
A)  endogenous variables, shocks, and economic "features." 
B)  TFP, the Solow residual, and Cobb-Douglas production. 
C)  labor supply, demand, and the real wage. 
D)  exogenous variables, endogenous variables, and normal variables. 
E)  interest rates, inflation, and unemployment.

Question 14

When taxes are included in the stylized DSGE model, with Cobb-Douglas production, labor demand is given by:

Accepted Answer

A)    . 
B)    . 
C)    . 
D)    . 
E)    . 
A)    . 
B)    . 
C)    . 
D)    . 
E)    .

Question 15

A computer virus that temporarily shuts down major manufacturers would:

Accepted Answer

A)  decrease long-run economic growth. 
B)  reduce the real wage. 
C)  increase the marginal product of labor. 
D)  increase the amount of leisure demanded. 
E)  None of these answers is correct. 
A)  decrease long-run economic growth. 
B)  reduce the real wage. 
C)  increase the marginal product of labor. 
D)  increase the amount of leisure demanded. 
E)  None of these answers is correct.

Question 16

Refer to the following figure when answering the following questions.
Figure 15.1: The Labor Market  
-Consider Figure 15.1, which is a representation of the labor market. In 2008, China reduced its corporate tax rate from 33 percent to 25 percent; this would cause a shift from curve ________, because changes in taxes are ________ in the stylized DSGE model.

Accepted Answer

A)    similar to a change in TFP 
B)    the opposite of a change in income taxes 
C)    identical to a change in income taxes 
D)    negatively affected by TFP 
E)  None of these answers is correct. 
A)    similar to a change in TFP 
B)    the opposite of a change in income taxes 
C)    identical to a change in income taxes 
D)    negatively affected by TFP 
E)  None of these answers is correct.

Question 17

Figure 15.7 shows the difference between Greek and German 10-year bond yields from 2007-2013. Answer the following questions:
(a) What does this data represent?
(b) In the Smets-Wouters DSGE model, what type of shock is this?
(c) How does this shock affect the macroeconomy in the Smets-Wouters DSGE model? Explain.Figure 15.7: 10-Year Bond Yields: Greece minus Germany   
(Source: Federal Reserve Economic Data, St. Louis Federal Reserve)

Accepted Answer

(a) The difference between the Greek and

Question 18

In the Smets-Wouters DSGE model, a positive TFP shock has an immediate ________ but ________.

Accepted Answer

A)  negative impact on hours worked; they start to rise after six quarters 
B)  positive impact on real GDP; growth is negative in the longer run 
C)  positive impact on inflation; leads to deflation later 
D)  effect on unemployment; hours worked per worker remains the same 
E)  negative impact on consumption; consumption grows later, as predicted by the permanent-income hypothesis 
A)  negative impact on hours worked; they start to rise after six quarters 
B)  positive impact on real GDP; growth is negative in the longer run 
C)  positive impact on inflation; leads to deflation later 
D)  effect on unemployment; hours worked per worker remains the same 
E)  negative impact on consumption; consumption grows later, as predicted by the permanent-income hypothesis

Question 19

Refer to the following figure when answering the following questions.
Figure 15.2: The Labor Market  
-In the stylized DSGE model for the labor market displayed in Figure 15.2, with sticky wages, contractionary monetary policy would cause a move from ________ because ________.

Accepted Answer

A)    it would cause a decline in the opportunity cost of leisure 
B)    consumption would fall 
C)    the real wage would not change 
D)    taxes would rise 
E)    other prices would fall 
A)    it would cause a decline in the opportunity cost of leisure 
B)    consumption would fall 
C)    the real wage would not change 
D)    taxes would rise 
E)    other prices would fall

Question 20

In the labor supply curve, the parameter   represents:

Accepted Answer

A)  consumption per person. 
B)  the   ratio. 
C)  the marginal product of capital. 
D)  the overall magnitude of labor supply. 
E)  the marginal utility of leisure. 
A)  consumption per person. 
B)  the   ratio. 
C)  the marginal product of capital. 
D)  the overall magnitude of labor supply. 
E)  the marginal utility of leisure.

In DGSE models, the dynamics of how macro variables react to a policy shock is called:

When taxes are included in the stylized DSGE model, with Cobb-Douglas production, labor demand is given by .

With a nominal price rigidity, firms cannot change the market clearing price.

Refer to the following figure when answering the following questions. Figure 15.3: The Labor Market -In the stylized DSGE model for the labor market displayed in Figure 15.3, with sticky prices, the Federal Reserve's desire to expand the economy would move the labor market from:

The reason inflation in the Smets-Wouters DSGE model if TFP rises is because .

In the Smets-Wouters DSGE model presented in the text, contractionary monetary policy has the largest impact on:

The fact that almost as sharply as GDP in the Smets-Wouters DSGE model .

Refer to the following figure when answering the following questions. Figure 15.3: The Labor Market -In the stylized DSGE model for the labor market displayed in Figure 15.3, with sticky prices, a monetary contraction would move the labor market from because .

Which of the following could be a NEGATIVE TFP shock?

In the DSGE framework, prospects for a "fiscal cliff" in the fall of 2012 increases about the future leading firms to , which would .

Refer to the following figure when answering the following questions. Figure 15.2: The Labor Market -In the stylized DSGE model for the labor market displayed in Figure 15.2, the line marked is due to which of the following? i. Cyclical unemployment ii. Sticky prices iii. Sticky wages

What makes DSGE models difficult to solve is:

The three components of any DSGE model are:

When taxes are included in the stylized DSGE model, with Cobb-Douglas production, labor demand is given by:

A computer virus that temporarily shuts down major manufacturers would:

In the Smets-Wouters DSGE model, a positive TFP shock has an immediate but .

Refer to the following figure when answering the following questions. Figure 15.2: The Labor Market -In the stylized DSGE model for the labor market displayed in Figure 15.2, with sticky wages, contractionary monetary policy would cause a move from because .

In the labor supply curve, the parameter represents:

Introduction to Macroeconomics

Measuring the Macroeconomy

An Overview of Long-Run Economic Growth

A Model of Production

The Solow Growth Model

Growth and Ideas

The Labor Market, Wages, and Unemployment

Inflation

An Introduction to the Short Run

The Great Recession: a First Look

The Is Curve

Monetary Policy and the Phillips Curve

Stabilization Policy and the Asad Framework

The Great Recession and the Short-Run Model

Consumption

Investment

The Government and the Macroeconomy

International Trade

Exchange Rates and International Finance

Parting Thoughts

Filters

Exam 15: Dsge Models: the Frontier of Business Cycle Research

In DGSE models, the dynamics of how macro variables react to a policy shock is called:

When taxes are included in the stylized DSGE model, with Cobb-Douglas production, labor demand is given by .

With a nominal price rigidity, firms cannot change the market clearing price.

Refer to the following figure when answering the following questions. Figure 15.3: The Labor Market -In the stylized DSGE model for the labor market displayed in Figure 15.3, with sticky prices, the Federal Reserve's desire to expand the economy would move the labor market from:

The reason inflation ________ in the Smets-Wouters DSGE model if TFP rises is because ________.

In the Smets-Wouters DSGE model presented in the text, contractionary monetary policy has the largest impact on:

The fact that ________ almost as sharply as GDP in the Smets-Wouters DSGE model ________.

Refer to the following figure when answering the following questions. Figure 15.3: The Labor Market -In the stylized DSGE model for the labor market displayed in Figure 15.3, with sticky prices, a monetary contraction would move the labor market from ________ because ________.

Which of the following could be a NEGATIVE TFP shock?

In the DSGE framework, prospects for a "fiscal cliff" in the fall of 2012 increases ________ about the future leading firms to ________, which would ________.

Refer to the following figure when answering the following questions. Figure 15.2: The Labor Market -In the stylized DSGE model for the labor market displayed in Figure 15.2, the line marked is due to which of the following? i. Cyclical unemployment ii. Sticky prices iii. Sticky wages

What makes DSGE models difficult to solve is:

The three components of any DSGE model are:

When taxes are included in the stylized DSGE model, with Cobb-Douglas production, labor demand is given by:

A computer virus that temporarily shuts down major manufacturers would:

In the Smets-Wouters DSGE model, a positive TFP shock has an immediate ________ but ________.

Refer to the following figure when answering the following questions. Figure 15.2: The Labor Market -In the stylized DSGE model for the labor market displayed in Figure 15.2, with sticky wages, contractionary monetary policy would cause a move from ________ because ________.

In the labor supply curve, the parameter represents:

Introduction to Macroeconomics

Measuring the Macroeconomy

An Overview of Long-Run Economic Growth

A Model of Production

The Solow Growth Model

Growth and Ideas

The Labor Market, Wages, and Unemployment

Inflation

An Introduction to the Short Run

The Great Recession: a First Look

The Is Curve

Monetary Policy and the Phillips Curve

Stabilization Policy and the Asad Framework

The Great Recession and the Short-Run Model

Consumption

Investment

The Government and the Macroeconomy

International Trade

Exchange Rates and International Finance

Parting Thoughts

Filters

The reason inflation in the Smets-Wouters DSGE model if TFP rises is because .

The fact that almost as sharply as GDP in the Smets-Wouters DSGE model .

Refer to the following figure when answering the following questions. Figure 15.3: The Labor Market -In the stylized DSGE model for the labor market displayed in Figure 15.3, with sticky prices, a monetary contraction would move the labor market from because .

In the DSGE framework, prospects for a "fiscal cliff" in the fall of 2012 increases about the future leading firms to , which would .

In the Smets-Wouters DSGE model, a positive TFP shock has an immediate but .

Refer to the following figure when answering the following questions. Figure 15.2: The Labor Market -In the stylized DSGE model for the labor market displayed in Figure 15.2, with sticky wages, contractionary monetary policy would cause a move from because .