Question 1

If the money supply grows 7% during the year,and people expected the money supply to grow by 5%,what happens to the short-run aggregate supply curve,according to the misperceptions theory?

Accepted Answer

A)  It shifts down.
B)  It shifts up.
C)  It doesn't shift.
D)  It shifts down unless Ricardian equivalence holds, in which case it doesn't shift. A

Question 2

The reason why some economists believe that attempts by the Fed to surprise the public in a systematic way cannot be successful is that

Accepted Answer

A)  information about the Fed's plans will inevitably be leaked to the public.
B)  the Fed announces its goals before Congress and publishes its policy actions in the Federal Reserve Bulletin six weeks after they take place.
C)  the public would eventually figure out what the Fed's policies were, negating the Fed's surprise.
D)  competition in the money markets would neutralize the Fed's intervention. C

Question 3

The most common measure of productivity shocks is known as

Accepted Answer

A)  the Solow residual.
B)  the Lucas supply curve.
C)  the Prescott productivity parameter.
D)  the Kydland factor. A

Question 4

The basic classical model can account for the procyclical behavior of money if there

Accepted Answer

A)  are real business cycles caused by productivity shocks.
B)  is reverse causation from future output to money.
C)  are rational expectations among the public.
D)  are propagation mechanisms in the economy.

Question 5

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

Accepted Answer

A)  an excess supply for goods.
B)  an increase in the real money supply.
C)  a fall in the price level.
D)  a rise in nominal wages.

Question 6

In the classical model,a temporary increase in government purchases causes the new equilibrium to have

Accepted Answer

A)  more employment and a lower real wage than before.
B)  more employment and a higher real wage than before.
C)  less employment and a lower real wage than before.
D)  less employment and a higher real wage than before.

Question 7

A temporary decrease in government purchases in the classical model would

Accepted Answer

A)  shift the production function to the left.
B)  shift the marginal product of labor curve to the right.
C)  shift the labor demand curve to the left.
D)  shift the labor supply curve to the left.

Question 8

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.

Accepted Answer

The answer of Analyze the short-run and long-run effects of...

Question 9

How do RBC theorists answer the objection that there have been few examples of large and easily measurable real shocks to the U.S.economy in recent decades?

Accepted Answer

The answer of How do RBC theorists answer the objection...

Question 10

The Solow residual is

Accepted Answer

A)  the waste from the production process.
B)  the most common measure of productivity shocks.
C)  a measure of the efficiency of the production process.
D)  a measure of the proportion of involuntarily unemployed workers.

Question 11

Research on productivity shocks has shown that

Accepted Answer

A)  productivity shocks have only nominal effects.
B)  there have been no identifiable productivity shocks in the U.S. economy since World War II.
C)  small productivity shocks can explain large business cycle fluctuations.
D)  large productivity shocks produce only small deviations in aggregate output.

Question 12

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?

Accepted Answer

The answer of How is the Solow residual measured? What...

Question 13

Which of the following is not a primary cause of business cycle fluctuations,according to real business cycle theory?

Accepted Answer

A)  A change in the production function
B)  A change in the size of the labor force
C)  A change in the money supply
D)  A change in the real quantity of government purchases

Question 14

Which of the following would not be an example of a productivity shock?

Accepted Answer

A)  The introduction of new management techniques
B)  A change in government regulations affecting production
C)  A change in the level of government transfer programs
D)  A spell of unusually good or unusually bad weather

Question 15

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

Accepted Answer

A)  zero.
B)  small.
C)  large.
D)  negative.

Question 16

Prescott's calibrated RBC model was able to match the data in terms of the ________ between many key macroeconomic variables and GNP; that is,in terms of how closely they moved with GNP over the business cycle.

Accepted Answer

A)  correlation
B)  interdependence
C)  gamma coefficient
D)  sigma ratio

Question 17

DSGE models are

Accepted Answer

A)  similar to RBC models but allow for shocks other than productivity shocks.
B)  similar to RBC models, but government spending shocks play a major role.
C)  similar to Keynesian models except in the long run.
D)  similar to Keynesian models except in the short run.

Question 18

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

Accepted Answer

A)  declined, and you would increase your output.
B)  declined, and you would decrease your output.
C)  increased, and you would increase your output.
D)  increased, and you would decrease your output.

Question 19

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

Accepted Answer

A)  The degree to which variables lead output over the business cycle
B)  The strength of procyclicality of different variables
C)  The amount of random variation in economic variables
D)  The degree to which different economic variables move together

Question 20

If the utilization rates of capital and labor are procyclical,then

Accepted Answer

A)  output will rise in recessions and decline in expansions.
B)  measured productivity will be constant.
C)  the Solow residual will be procyclical.
D)  prices will be countercyclical.

Exam 10: Classical Business Cycle Analysis