Question 1

According to classical economists,the government should increase government purchases when

Accepted Answer

A)  the benefits of the spending exceed the costs.
B)  the economy is in a recession.
C)  the economy is likely to go into a recession in the next six months to a year.
D)  inflation is lower than its targeted level.E) C) and D)
F) A) and B)

Question 2

When RBC economists compare the correlations 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 togetherE) B) and C)
F) None of the above

Question 3

According to the real business cycle theory,what is the principal cause of business cycle fluctuations?

Accepted Answer

According to the real business...

Question 4

The misperceptions theory was originally proposed by ________ and rigorously formulated by ________.

Accepted Answer

A)  Milton Friedman; Robert Lucas
B)  John Maynard Keynes; Robert Solow
C)  Edward Prescott; Robert King
D)  James Tobin; Greg MankiwE) A) and D)
F) None of the above

Question 5

You are likely to think that the relative price of your good has risen and you should increase your output if you expected

Accepted Answer

A)  the inflation rate to be 10% and the price of your good rose 7%.
B)  the inflation rate to be 10% and the price of your good rose 10%.
C)  the inflation rate to be 10% and the price of your good rose 13%.
D)  the inflation rate to be 0% and the price of your good fell 10%.E) B) and C)
F) All of the above

Question 6

According to real business cycle theory,which of the following events is least likely to cause a recession?

Accepted Answer

A)  A decline in the money supply
B)  A decline in the capital stock
C)  A decline in productivity
D)  A decline in labor supplyE) A) and C)
F) B) and C)

Question 7

What do RBC economists mean by the term calibration?

Accepted Answer

A)  Modifying the structure of an economic theory to strengthen its logic
B)  Changing a theory as the economy changes
C)  Working out a detailed numerical example of a more general theory
D)  Writing out the implications of a theory for all the main economic variablesE) B) and C)
F) A) and D)

Question 8

Classical economists think that the government ________ use fiscal policy to dampen the business cycle because prices and wages adjust ________.

Accepted Answer

A)  should not; rapidly
B)  should not; slowly
C)  should; slowly
D)  should; rapidlyE) A) and B)
F) None of the above

Question 9

Prescott's calibrated RBC model showed that the actual and simulated ________ of five key macroeconomic variables were very close.

Accepted Answer

A)  magnitudes
B)  slopes
C)  volatilities
D)  betasE) A) and D)
F) C) and D)

Question 10

In the classical model,a temporary decrease in government spending would cause a decrease in

Accepted Answer

A)  output, the real interest rate, real wages, and the price level.
B)  employment, the real interest rate, real wages, and the price level.
C)  output, employment, the real interest rate, and the price level.
D)  output, employment, real wages, and the price level.E) B) and D)
F) None of the above

Question 11

People ________ their labor supply in response to a temporary decrease in government purchases because

Accepted Answer

A)  increase; current or future taxes will decrease, making them financially better off.
B)  decrease; current or future taxes will decrease, making them financially better off.
C)  decrease; current or future taxes will increase, making them financially worse off.
D)  increase; current or future taxes will increase, making them financially worse off.E) None of the above
F) B) and C)

Question 12

Classical economists believe that

Accepted Answer

A)  money is neutral.
B)  an increase in the real money supply affects output.
C)  inflation is determined by wage growth.
D)  monetary policy should be used to combat recessions.E) C) and D)
F) A) and D)

Question 13

How do RBC economists face the business cycle fact that inflation is procyclical?

Accepted Answer

A)  They argue that even though inflation doesn't fit their theory, everything else does, and inflation is not important.
B)  They note that inflation would not be procyclical if monetary policy were conducted properly.
C)  They argue that inflation is procyclical only because monetary policy shocks are the main cause of business cycles.
D)  They use alternative statistical methods that suggest that inflation is countercyclical.E) C) and D)
F) All of the above

Question 14

Suppose the money demand of individuals and firms depends on what they perceive to be the probabilities that the economy will expand or contract over the following six months.Suppose their money demand is given by the equation L = 0.5Y - 100i + 20z,where z is the probability that the economy is expanding six months in the future.If z = 1,the economy will certainly be in recovery,if z = 0,the economy will certainly be in recession,and for z between 0 and 1 there is some uncertainty about the future state of the economy.Use a classical (RBC)model of the economy.If the Fed moves the money supply to target the price level,how does the money supply relate to the expected future state of the economy? Is this an example of reverse causation?

Accepted Answer

For a given level of real output and the...

Question 15

Because employment actually continued to fall at the beginning of the recoveries that began in 1991,2001,and 2009,these recoveries have come to be known as

Accepted Answer

A)  pseudo recoveries.
B)  non-recoveries.
C)  double-dip recoveries.
D)  jobless recoveries.E) B) and C)
F) None of the above

Question 16

According to classical economists,in recessions,not only does the unemployment rate increase,so does the

Accepted Answer

A)  interest rate.
B)  level of fiscal stimulus.
C)  natural rate of unemployment.
D)  level of potential output.E) C) and D)
F) B) and D)

Question 17

Measures of the Solow residual show it to be

Accepted Answer

A)  strongly procyclical.
B)  mildly procyclical.
C)  mildly countercyclical.
D)  strongly countercyclical.E) A) and B)
F) A) and C)

Question 18

Given data on capital (K) ,labor (N) ,and output (Y) ,and estimates of capital's share of output (a) ,the Solow residual is measured as

Accepted Answer

A)  Y KaN1-a
B)  (Y Ka) / N1-a 
C)  Y / (KaN1-a) 
D)  1/(Y KaN1-a) E) A) and D)
F) None of the above

Question 19

People increase their labor supply in response to a temporary increase in government purchases because

Accepted Answer

A)  current or future taxes will increase, making them financially worse off.
B)  they need to work more to keep up with their neighbors.
C)  interest rates will rise, causing a substitution effect.
D)  higher spending today will lead to higher spending in the future, as well.E) A) and C)
F) B) and C)

Question 20

Romer and Romer found evidence that money is not neutral because

Accepted Answer

A)  in several episodes, such as 1979-1982, changes in monetary policy led to recessions.
B)  they found that inflation was highly correlated with the rate of growth of the money supply.
C)  if money were neutral, no one would care what the Fed does.
D)  they found no evidence that productivity changes or changes in government spending contributed to business cycles; only monetary changes preceded every recession.E) B) and D)
F) All of the above

Exam 10: Classical Business Cycle Analysis

Classical economists believe that

Correct Answer
verified

People increase their labor supply in response to a temporary increase in government purchases because

Correct Answer
verified

Correct Answer
verified
For a given level of real output and the...
View Answer

Measures of the Solow residual show it to be

Correct Answer
verified

Because employment actually continued to fall at the beginning of the recoveries that began in 1991,2001,and 2009,these recoveries have come to be known as

Correct Answer
verified

In the classical model,a temporary decrease in government spending would cause a decrease in

Correct Answer
verified

You are likely to think that the relative price of your good has risen and you should increase your output if you expected

Correct Answer
verified

People ________ their labor supply in response to a temporary decrease in government purchases because

Correct Answer
verified

According to the real business cycle theory,what is the principal cause of business cycle fluctuations?

Correct Answer
verified
According to the real business...
View Answer

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

Correct Answer
verified

What do RBC economists mean by the term calibration?

Correct Answer
verified

Given data on capital (K) ,labor (N) ,and output (Y) ,and estimates of capital's share of output (a) ,the Solow residual is measured as

Correct Answer
verified

The misperceptions theory was originally proposed by and rigorously formulated by .

Correct Answer
verified

According to classical economists,the government should increase government purchases when

Correct Answer
verified

According to real business cycle theory,which of the following events is least likely to cause a recession?

Correct Answer
verified

Classical economists think that the government use fiscal policy to dampen the business cycle because prices and wages adjust .

Correct Answer
verified

Romer and Romer found evidence that money is not neutral because

Correct Answer
verified

Prescott's calibrated RBC model showed that the actual and simulated ________ of five key macroeconomic variables were very close.

Correct Answer
verified

According to classical economists,in recessions,not only does the unemployment rate increase,so does the

Correct Answer
verified

How do RBC economists face the business cycle fact that inflation is procyclical?

Correct Answer
verified

Exam 10: Classical Business Cycle Analysis

Classical economists believe that

Correct AnswerverifiedShow Answer

People increase their labor supply in response to a temporary increase in government purchases because

Correct AnswerverifiedShow Answer

Correct AnswerverifiedFor a given level of real output and the...View AnswerShow Answer

Measures of the Solow residual show it to be

Correct AnswerverifiedShow Answer

Because employment actually continued to fall at the beginning of the recoveries that began in 1991,2001,and 2009,these recoveries have come to be known as

Correct AnswerverifiedShow Answer

In the classical model,a temporary decrease in government spending would cause a decrease in

Correct AnswerverifiedShow Answer

You are likely to think that the relative price of your good has risen and you should increase your output if you expected

Correct AnswerverifiedShow Answer

People ________ their labor supply in response to a temporary decrease in government purchases because

Correct AnswerverifiedShow Answer

According to the real business cycle theory,what is the principal cause of business cycle fluctuations?

Correct AnswerverifiedAccording to the real business...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

What do RBC economists mean by the term calibration?

Correct AnswerverifiedShow Answer

Given data on capital (K) ,labor (N) ,and output (Y) ,and estimates of capital's share of output (a) ,the Solow residual is measured as

Correct AnswerverifiedShow Answer

The misperceptions theory was originally proposed by ________ and rigorously formulated by ________.

Correct AnswerverifiedShow Answer

According to classical economists,the government should increase government purchases when

Correct AnswerverifiedShow Answer

According to real business cycle theory,which of the following events is least likely to cause a recession?

Correct AnswerverifiedShow Answer

Classical economists think that the government ________ use fiscal policy to dampen the business cycle because prices and wages adjust ________.

Correct AnswerverifiedShow Answer

Romer and Romer found evidence that money is not neutral because

Correct AnswerverifiedShow Answer

Prescott's calibrated RBC model showed that the actual and simulated ________ of five key macroeconomic variables were very close.

Correct AnswerverifiedShow Answer

According to classical economists,in recessions,not only does the unemployment rate increase,so does the

Correct AnswerverifiedShow Answer

How do RBC economists face the business cycle fact that inflation is procyclical?

Correct AnswerverifiedShow Answer

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Correct Answer
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Correct Answer
verified
For a given level of real output and the...
View Answer

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Correct Answer
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Correct Answer
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Correct Answer
verified
According to the real business...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The misperceptions theory was originally proposed by and rigorously formulated by .

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Classical economists think that the government use fiscal policy to dampen the business cycle because prices and wages adjust .

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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