Question 1

Suppose the economy's production function is Y = A(300N - N²).The marginal product of labor is MPN = A(300 - 2N).Suppose that A = 10.The supply of labor is NS = 0.05w + 0.005G. (a)If G is 26,000,what are the real wage,employment,and output? (b)If G rises to 26,400,what are the real wage,employment,and output? (c)If G falls to 25,600,what are the real wage,employment,and output? (d)In cases (b)and (c),what is the government purchases multiplier; that is,what is the change in output divided by the change in government purchases?

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Question 2

Use the classical IS-LM model to show the effects of a temporary decrease in government purchases on the equilibrium levels of output,the real interest rate,employment,the real wage,and the price level.

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The answer of Use the classical IS-LM model to show...

Question 3

A temporary decrease in government purchases in the classical model would

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The answer of A temporary decrease in government purchases in...

Question 4

Describe,in general terms,how an economist calibrates a macroeconomic model.What statistics can be usefully examined to see how well the model corresponds to the data?

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Question 5

In the classical model,a temporary increase in government purchases causes

Accepted Answer

In the classical model, a temporary increase in government purchases is typically financed through borrowing, which increases the demand for loanable funds. This leads to an increase in the real interest rate. Higher interest rates discourage some private investment, but the direct effect of increased government spending usually leads to an overall increase in output. Hence, both output and the real interest rate increase.

Question 6

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

Accepted Answer

A temporary increase in government purchases often implies that taxes will rise in the future to pay for the increased spending, making people feel financially worse off. As a result, they may increase their labor supply to maintain their standard of living.

Question 7

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

Accepted Answer

In the classical model, a temporary increase in government purchases leads to more employment due to increased demand for goods and services. However, it also results in a lower real wage because the supply of labor increases as more people are willing to work at the current wage rates, leading to downward pressure on real wages.

Question 8

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

Accepted Answer

Classical economists believe that the government should not use fiscal policy to intervene in the business cycle because they argue that prices and wages adjust rapidly to changes in supply and demand, allowing the economy to self-correct.

Question 9

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

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The answer of People ________ their labor supply in response...

Question 10

According to classical economists,the increase in unemployment in recessions is caused by

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Question 11

A temporary increase in government purchases in the classical model would

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The answer of A temporary increase in government purchases in...

Question 12

During a recession,would classical economists propose that changes in government spending or taxes be used to improve economic conditions? Briefly explain.

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Question 13

According to classical economists,unemployment exists because

Accepted Answer

Classical economists believed that unemployment existed because it takes time and effort for someone to find a job. They believed that wages would adjust to clear the labor market, but this process takes time and during that time, some individuals may be without work. Classical economists did not believe that government activity, such as minimum wage laws, caused unemployment. They also did not assume that all workers are identical.

Question 14

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?

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

Question 15

According to classical economists,the increase in the unemployment rate in recessions occurs because

Accepted Answer

Classical economists believe that the increase in unemployment during recessions is primarily due to the time needed to find a job rising, as the overall economic activity slows down, affecting the labor market dynamics.

Question 16

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

Accepted Answer

Classical economists generally advocate for minimal government intervention in the economy. They believe government spending should be increased only when the benefits of such spending clearly outweigh the costs, rather than as a tool to manage economic cycles or inflation.

Question 17

Classical economists would cite all of the following as reasons why the government cannot smooth out the business cycle except that

Accepted Answer

Classical economists believe that only productivity shocks can cause real fluctuations in the business cycle, and therefore do not include the inability to address other types of shocks as a reason why the government cannot smooth out the business cycle.

Question 18

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

Accepted Answer

In the classical model, a temporary decrease in government spending would cause a decrease in output and employment because the decrease in government spending would mean there is less demand for goods and services. This decrease in demand would then lead to a decrease in prices and wages in order to clear the market, leading to a decrease in the real interest rate as well.

Question 19

The main avenue by which a temporary change in government purchases in the classical model affects the labor supply is by

Accepted Answer

In the classical model, a temporary change in government purchases does not affect the population, stock market, or business confidence. However, it can affect workers' wealth by causing a temporary increase in demand for labor, leading to higher wages and potentially increasing labor supply as workers feel wealthier and more incentivized to work.

Question 20

According to classical economists,unemployment rises in recessions due to an increase in ________ unemployment,not ________ unemployment.

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Quiz 10: Classical Business Cycle Analysis