Question 1

In the two-period model, suppose a household's income in the first period is $50,000, income in the second period is $60,000, and the real interest rate is 25 percent.Draw a diagram showing the budget constraint.Now, suppose the real interest rate declines to 20 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.If the household decides that its consumption in period 1 should always be one half of the present value of income, determine whether the household is worse off or better off because of the decline in the real interest rate.Show your work.

Accepted Answer

The answer of In the two-period model, suppose a household's...

Question 2

What are the advantages and disadvantages of VAR models?

Accepted Answer

The answer of What are the advantages and disadvantages of...

Question 3

In the two-period model, suppose a household's income in period one is $30,000 and its income in period two is $40,000.Also assume that the household face the real interest rate of 25 percent.What is the present value of the
Household's income?​

Accepted Answer

A) ​$62,000 
B) ​$46,000 
C) ​$20,000 
D) ​$30,000

Question 4

Which of the following is a criticism leveled against VAR models?

Accepted Answer

A) VAR models are based on classical rather than Keynesian economic theory. 
B) Var models are not based on data. 
C) VAR models are unable to isolate the effects of policy variables because those variables are not exogenous. 
D) VAR models isolate the effects of policy variables because those variables are exogenous variables.

Question 5

Because RBC models are complicated, researchers generally

Accepted Answer

A) solve the models analytically. 
B) use econometric analysis on the models. 
C) replicate the models. 
D) simulate the models.

Question 6

In a two-period model, assume that there are 20 households each with an income of $35,000 in period one and an income of $45,000 in period two.The equilibrium rate of interest faced by the household is 50 percent.The government decides to offer each household a tax rebate of $1,500 in period one.As a rational economic agent you know that the government will tax the households in period two, in order to repay its borrowing.With the interest rate unaffected by the government's action, the government will impose a tax of______ per household, in period two.

Accepted Answer

A) ?$2,600 
B) ?$3,265 
C) ?$1,500 
D) ?$2,250

Question 7

An RBC researcher who picks a few key parameters based on long-run historical averages of the data is probably

Accepted Answer

A) calibrating a model. 
B) using econometric analysis. 
C) replicating a model. 
D) solving a model analytically.

Question 8

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.The government proposes to give the household a tax rebate of $5,000 in the first period, but will tax the household an additional $5,000 × 1.25 = $6,250 in the second period.The household is _____under the government's tax rebate plan compared with before.

Accepted Answer

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

Question 9

A situation in which all markets are in equilibrium and all economic agents have made decisions in their own best interest is called

Accepted Answer

A) general equilibrium. 
B) the liquidity effect. 
C) the real wealth effect. 
D) dynamic equilibrium.

Question 10

A model that is based on the decisions of economic agents is known as

Accepted Answer

A) a rational-expectations model. 
B) a decision-theoretic model. 
C) a model with microeconomic foundations. 
D) a fully compatible real business cycle model.

Question 11

If people form their expectations using all the information available to them, they are said to have

Accepted Answer

A) informed expectations. 
B) rational expectations. 
C) irrational forecasts. 
D) an information set.

Question 12

An economy has fifty households, all of which have incomes of $25,000 each in period 2.The twenty-five poor households have incomes of $10,000 each in period 1, while the twenty-five rich households have incomes of $20,000 each in period 1.Assume that the price of the good is $1 in both periods.Suppose that each household decides that its consumption in period 1 will equal 50 percent of the present value of its income from both periods.
a.Calculate the present value of income for poor households as a function of the interest rate.
Calculate the amount that poor households will spend on consumption, as a function of the interest rate.Calculate the amount that poor households will save as a function of the real interest rate.Show your work.

b.Calculate the present value of income for rich households as a function of the interest rate.
Calculate the amount that rich households will spend on consumption, as a function of the interest rate.Calculate the amount that rich households will save as a function of the real interest rate.Show your work.

c.Given the equations you calculated for savings for each type of household and assuming that the households borrow from each other, find the equilibrium value of the interest rate.Show your work.

Accepted Answer

The answer of An economy has fifty households, all of...

Question 13

Describe the general procedures followed by DSGE researchers creating a new model.

Accepted Answer

The answer of Describe the general procedures followed by DSGE...

Question 14

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

Accepted Answer

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

Question 15

Which of the following is the third step in the procedure of conducting a research by researchers using a DSGE model?​

Accepted Answer

A) ​To match up the model with economic data, using statistical techniques to calculate the size of shocks that occur. 
B) ​To pose the question to be answered. 
C) ​To simulate the model and compare statistical properties of the model with those of the data. 
D) ​To develop a model containing major elements needed to answer the question, and to analyze the decision that each economic agent must face.

Question 16

A model that incorporates time and uncertainty in which prices, wages, and interest rates adjust to bring all markets to equilibrium and which allows economic agents to make decisions in their own interest is known as​

Accepted Answer

A) ​A dynamic, stochastic, general­equilibrium model 
B) ​A structural macroeconomic model 
C) ​A business­cycle model 
D) A statistical model

Question 17

RBC models are said to reproduce some important relationships between variables over the U.S.business cycle. Identify one such relationship from the given options.​

Accepted Answer

A) ​Output growth is closely related to growth in investment expenditure over the business cycle. 
B) ​Over the course of the business cycle, consumption spending on physical capital grow less than the investment spending on physical capital. 
C) ​Over the course of the business cycle, consumption spending on physical capital grow more than the investment spending on physical capital. 
D) ​Output growth is closely related to growth in labor hours over the business cycle.

Question 18

General equilibrium is a situation in which all markets are in  _____and all economic agents have made decisions____.

Accepted Answer

A) equilibrium; in their own best interests 
B) shortage; in their own best interests 
C) surplus; based on only partial information 
D) equilibrium; based on only partial information

Question 19

In a two-period model, a household has an income of $20,000 in period one and an income of $25,000 in period two. The household faces an interest rate of 50 percent.What is the present value of the household's income if the income in period one increases to $30,000?

Accepted Answer

A) ​$39,000 
B) ​$46,666.66 
C) ​$40,555.65 
D) ​$50,000

Question 20

In the two-period model, suppose a household's income in the first period is $30,000, income in the second period is $60,000, and the real interest rate is 30 percent.What is the household's maximum spending in the second period, if it decides to save the entire amount in the first period?

Accepted Answer

A) $40,000 
B) $50,000 
C) $80,000 
D) $99,000

Exam 13: Modern Macroeconomic Models

What are the advantages and disadvantages of VAR models?

In the two-period model, suppose a household's income in period one is $30,000 and its income in period two is $40,000.Also assume that the household face the real interest rate of 25 percent.What is the present value of the Household's income?

Which of the following is a criticism leveled against VAR models?

Because RBC models are complicated, researchers generally

An RBC researcher who picks a few key parameters based on long-run historical averages of the data is probably

A situation in which all markets are in equilibrium and all economic agents have made decisions in their own best interest is called

A model that is based on the decisions of economic agents is known as

If people form their expectations using all the information available to them, they are said to have

Describe the general procedures followed by DSGE researchers creating a new model.

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

Which of the following is the third step in the procedure of conducting a research by researchers using a DSGE model?

A model that incorporates time and uncertainty in which prices, wages, and interest rates adjust to bring all markets to equilibrium and which allows economic agents to make decisions in their own interest is known as

RBC models are said to reproduce some important relationships between variables over the U.S.business cycle. Identify one such relationship from the given options.

General equilibrium is a situation in which all markets are in _and all economic agents have made decisions.

In a two-period model, a household has an income of $20,000 in period one and an income of $25,000 in period two. The household faces an interest rate of 50 percent.What is the present value of the household's income if the income in period one increases to $30,000?

In the two-period model, suppose a household's income in the first period is $30,000, income in the second period is $60,000, and the real interest rate is 30 percent.What is the household's maximum spending in the second period, if it decides to save the entire amount in the first period?

Exam 13: Modern Macroeconomic Models

What are the advantages and disadvantages of VAR models?

In the two-period model, suppose a household's income in period one is $30,000 and its income in period two is $40,000.Also assume that the household face the real interest rate of 25 percent.What is the present value of the Household's income?​

Which of the following is a criticism leveled against VAR models?

Because RBC models are complicated, researchers generally

An RBC researcher who picks a few key parameters based on long-run historical averages of the data is probably

A situation in which all markets are in equilibrium and all economic agents have made decisions in their own best interest is called

A model that is based on the decisions of economic agents is known as

If people form their expectations using all the information available to them, they are said to have

Describe the general procedures followed by DSGE researchers creating a new model.

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

Which of the following is the third step in the procedure of conducting a research by researchers using a DSGE model?​

A model that incorporates time and uncertainty in which prices, wages, and interest rates adjust to bring all markets to equilibrium and which allows economic agents to make decisions in their own interest is known as​

RBC models are said to reproduce some important relationships between variables over the U.S.business cycle. Identify one such relationship from the given options.​

General equilibrium is a situation in which all markets are in _____and all economic agents have made decisions____.

In a two-period model, a household has an income of $20,000 in period one and an income of $25,000 in period two. The household faces an interest rate of 50 percent.What is the present value of the household's income if the income in period one increases to $30,000?

In the two-period model, suppose a household's income in the first period is $30,000, income in the second period is $60,000, and the real interest rate is 30 percent.What is the household's maximum spending in the second period, if it decides to save the entire amount in the first period?

In the two-period model, suppose a household's income in period one is $30,000 and its income in period two is $40,000.Also assume that the household face the real interest rate of 25 percent.What is the present value of the Household's income?

Which of the following is the third step in the procedure of conducting a research by researchers using a DSGE model?

A model that incorporates time and uncertainty in which prices, wages, and interest rates adjust to bring all markets to equilibrium and which allows economic agents to make decisions in their own interest is known as

RBC models are said to reproduce some important relationships between variables over the U.S.business cycle. Identify one such relationship from the given options.

General equilibrium is a situation in which all markets are in _and all economic agents have made decisions.