The real business cycle model begins with the assumption that
A) the velocity of money is a constant. B) wages and prices are sticky. C) nominal variables are superior to real variables in describing economic activity. D) wages and prices are completely flexible.
The complete wage and price flexibility of the real business cycle framework implies that
A) aggregate output always equals potential output. B) the velocity of money is a constant. C) the velocity of money times the money supply is equal to the nominal value of transactions over a given period of time. D) sustained economic contractions, like the Great Depression, cannot occur in real, historical time.
In real business cycle models, shifts of the aggregate demand curve
A) result from changes in the willingness to work B) cause changes in inflation, but have no effect on output C) result from Solow residuals D) cannot occur
The primary source of shocks to potential output and long-run supply for real business cycle theorists is
A) a change in the price of complements. B) a change in any of the components of aggregate demand. C) changes in the money supply. D) shocks to productivity.
Which of the following would be considered a negative real supply shock?
A) a decrease in the money supply. B) a relaxation of government environmental regulations. C) a decrease in aggregate demand. D) a permanent increase in the price of energy.
In the real business cycle model, fluctuations in employment are explained by
A) changes in the marginal propensity to consume. B) the impact of a change in price on quantity demand and quantity supplied in goods markets. C) changes in the composition of household assets. D) intertemporal substitution as real wages and real interest rates changes.
In the real business cycle model, unemployment is
A) voluntary. B) the result of higher productivity. C) costless to individual workers. D) the result of higher wages.
Critics of real business cycle analysis suggest that the persuasiveness of the model may be limited by the existence of
A) rising wages. B) voluntary unemployment. C) labor hoarding. D) flexible wages and prices.
Critics of real business cycle theory doubt the plausibility of
A) intertemporal substitution B) a trade-off between work and leisure C) negative productivity shocks. D) adaptive expectations.
In the new Keynesian model, sticky prices may be due to
A) negative productivity shocks. B) staggered prices. C) positive productivity shocks. D) involuntary unemployment.
In the new Keynesian model, expected inflation is a function of
A) expected growth of the money supply B) expected future output gaps and markup shocks C) unanticipated aggregate demand shocks D) current and past inflation
In the new Keynesian model, an increase in productivity will cause
A) a leftward shift in short-run aggregate supply and rightward shift in long-run aggregate supply B) a rightward shift in short-run aggregate supply and a leftward shift in long-run aggregate supply. C) a rightward shift in short-run and long-run aggregate supply. D) a leftward shift in short-run and long-run aggregate supply.
In the new Keynesian model, an ________ increase in productivity will impact
A) unanticipated; both aggregate demand and aggregate supply B) anticipated; aggregate demand, but not aggregate supply C) unanticipated; aggregate demand, but not aggregate supply D) anticipated; both aggregate demand and aggregate supply
In the new Keynesian model, if an aggregate demand increase is anticipated, then
A) aggregate demand will not change. B) short-run aggregate supply will shift up immediately C) there is no immediate effect on the short-run supply curve D) short-run aggregate supply will shift down immediately
In the new Keynesian model, the ultimate effect on inflation of an anticipated aggregate demand shock is
A) the same as would develop if that event had never occurred B) less than if that event was unanticipated. C) greater than if that event was unanticipated. D) independent of whether or not that event is anticipated or unanticipated.
Research supporting the new Keynesian model finds that prices are
A) changed very frequently B) slow to adjust to aggregate demand shocks C) not as flexible as wages D) changed only infrequently
Expectations are taken to be rational in________.
A) new Keynesian and real business cycle theory. B) traditional Keynesian and new Keynesian theory. C) real business cycle and traditional Keynesian theory. D) traditional Keynesian, new Keynesian and real business cycle theory.
The three business cycle models differ mostly in their treatment of
A) short-run aggregate supply B) aggregate demand C) productivity shocks D) long-run aggregate supply
Long-run aggregate supply shocks are not a source of business cycle fluctuations in the ________, because
A) new Keynesian model; such shocks are anticipated by forward-looking consumers and firms B) traditional Keynesian model; long-run supply shocks are incompatible with adaptive expectations C) traditional Keynesian model; demand fluctuations are considered of dominant importance D) real business cycle model; shocks cannot persist in the long run, when prices and wages are flexible
Discretionary economic policy is not beneficial in the
A) new Keynesian theory. B) traditional Keynesian theory. C) Luka Brazzi model. D) real business cycle theory.
The level of income is unchanged in response to unanticipated anti-inflation policy in
A) real business cycle theory. B) post classical theory C) new Keynesian theory. D) traditional Keynesian theory.
In macroeconomic modelling, as price flexibility increases________.
A) the short-run aggregate supply schedule will get flatter. B) the short-run aggregate supply schedule will shift to the left. C) the short-run aggregate supply schedule will get steeper. D) the short-run aggregate supply schedule will shift to the right.
Reductions in inflation have no cost in terms of lower output in
A) new Keynesian theory. B) traditional and new Keynesian theory. C) real business cycle theory. D) traditional Keynesian theory.
Anti-inflationary policy is less costly when that policy is anticipated in
A) real business cycle theory. B) traditional Keynesian theory. C) institutionalist theory. D) new Keynesian theory.
The possibility that unanticipated policy changes are an important source of output fluctuations is most consistent with
A) new Keynesian theory B) real business cycle theory C) traditional Keynesian theory D) institutionalist theory