Question 1

The most common measure of productivity shocks is known as
A)the Solow residual.
B)the Lucas supply curve.
C)the Prescott productivity parameter.
D)the Kydland factor.

Accepted Answer

The most common measure of productivity shocks is the Solow residual, which measures the portion of output growth that is not accounted for by changes in capital or labor inputs. It is named after economist Robert Solow. The other options (B, C, D) are not commonly used measures of productivity shocks.

Question 2

An adverse supply shock would directly ________ labor productivity by changing the amount of output that can be produced with any given amount of capital and labor.It would also indirectly ________ average labor productivity through changes in the level of employment.
A)increase; increase
B)increase; decrease
C)decrease; increase
D)decrease; decrease

Accepted Answer

An adverse supply shock is an unexpected event that causes a sudden decrease in the supply of a good or service. This can happen if there is a natural disaster or if the government imposes new regulations that restrict production. This would directly decrease labor productivity by reducing the amount of output that can be produced with any given amount of capital and labor. However, it would also indirectly increase average labor productivity through changes in the level of employment. This is because fewer workers would be needed to produce the same amount of output, leading to higher average labor productivity.

Question 3

What do RBC economists mean by the term calibration?
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 variables

Accepted Answer

Calibration refers to working out a detailed numerical example of a more general economic theory.

Question 4

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

Accepted Answer

When RBC economists compare their models to the data, they are looking at the degree to which different economic variables move together, which is captured by the correlation between variables. This is important for understanding how different factors contribute to economic fluctuations and for assessing the accuracy of the model's predictions.

Question 5

Prescott's calibrated RBC model showed that the actual and simulated ________ of five key macroeconomic variables were very close.
A)magnitudes
B)slopes
C)volatilities
D)betas

Accepted Answer

Prescott's calibrated Real Business Cycle (RBC) model demonstrated that the actual and simulated volatilities of five key macroeconomic variables closely matched, showcasing the model's ability to replicate the fluctuations observed in real-world economic data.

Question 6

A temporary beneficial productivity shock would
A)shift the labor supply curve down and to the right.
B)increase the level of employment.
C)increase future income.
D)increase the expected future marginal product of capital.

Accepted Answer

A temporary beneficial productivity shock would increase the productivity of workers, leading to an increase in output and profits for firms. As a result, firms would need to hire more workers to meet the higher demand for their goods/services leading to an increase in the level of employment. The shock would not necessarily shift the labor supply curve or affect future income or the expected future marginal product of capital.

Question 7

When RBC economists work out a detailed numerical example of a more general theory,they are performing
A)econometrics.
B)number theory.
C)calibration.
D)topology.

Accepted Answer

When RBC (Real Business Cycle) economists work out a detailed numerical example of a more general theory, they are performing calibration, which involves using data to determine specific parameter values in a theoretical model. Econometrics involves the application of statistical methods to economic data, number theory involves the study of integers, and topology involves the study of shapes and spaces.

Question 8

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

Accepted Answer

According to real business cycle theory, fluctuations in the business cycle are primarily caused by changes in productivity or technology shocks, changes in consumer preferences, changes in government policies related to taxes and regulations, and changes in international trade. Changes in the money supply do not directly affect productivity or technology shocks, and therefore are not considered a primary cause of business cycle fluctuations according to this theory.

Question 9

A temporary adverse productivity shock would
A)shift the labor supply curve upward.
B)decrease the level of employment.
C)decrease future income.
D)decrease the expected future marginal product of capital.

Accepted Answer

A temporary adverse productivity shock would lead to a decrease in the level of employment as firms may need to reduce production and lay off workers to maintain profitability in the short run. However, over time, the shock may reverse as firms adjust and find ways to become more efficient, leading to a potential increase in employment levels again. The other options are not directly related to a temporary adverse productivity shock.

Question 10

Which of the following is an example of a productivity shock?
A)The introduction of new management techniques
B)A change in taxes on corporate profits
C)A change in the level of government transfer programs
D)An increase in the money supply

Accepted Answer

A productivity shock refers to an abrupt change in the efficiency of production processes. The introduction of new management techniques could potentially change the productivity level of a company or industry, making A the best choice. Choices B, C, and D do not involve changes in productivity levels.

Question 11

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

Accepted Answer

When RBC economists compare the volatility in their models to the data, they are looking at the amount of random variation in economic variables. This helps them determine the accuracy of their models and whether they are capturing the true volatility of the economy.

Question 12

Research on productivity shocks has shown that
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.

Accepted Answer

Research has shown that small productivity shocks can explain large business cycle fluctuations, indicating that productivity shocks can have significant effects on the economy despite their small size.

Question 13

The distinction between real and nominal shocks is that
A)real shocks directly affect only the IS curve,but not the FE line or LM curve.
B)real shocks directly affect only the FE line,but not the LM curve.
C)real shocks directly affect only the IS curve or the FE line,but not the LM curve.
D)real shocks have a large direct effect on the IS curve and the FE line,but only a small direct effect on the LM curve.

Accepted Answer

Real shocks refer to changes in productivity, technology, or resource availability that affect the supply side of the economy, leading to changes in output, prices, and employment. Real shocks directly affect the IS curve or the FE line, but not the LM curve. For example, an increase in labor productivity or a decrease in oil prices will shift the FE line to the right, increasing output and decreasing prices. Nominal shocks, on the other hand, refer to changes in the money supply or the price level that affect the demand side of the economy, leading to changes in interest rates, output, and prices. Nominal shocks directly affect the LM curve or the IS curve, but not the FE line. For example, a decrease in the money supply or an increase in the price level will shift the LM curve to the left, increasing interest rates and decreasing output.

Question 14

In the classical IS-LM/AD-AS model,a beneficial productivity shock would ________ output,________ the real interest rate,and ________ the price level.
A)increase; decrease; increase
B)increase; decrease; decrease
C)increase; increase; decrease
D)decrease; decrease; increase

Accepted Answer

A beneficial productivity shock in the classical IS-LM/AD-AS model would increase output due to higher efficiency and productivity. This would lead to a decrease in the real interest rate as the demand for money decreases (with stable or increased supply), and it would also decrease the price level due to increased supply of goods and services, making them cheaper.

Question 15

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

Accepted Answer

The answer of How do RBC economists face the business...

Question 16

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

Accepted Answer

A productivity shock refers to any event that affects the level of productivity in an economy, such as a technological breakthrough or a change in labor supply. Changes in government transfer programs, which affect the level of income redistribution in an economy, are not directly related to productivity and would not be considered a productivity shock.

Question 17

According to real business cycle theory,which of the following events is least likely to cause a recession?
A)A decline in the money supply
B)A decline in the capital stock
C)A decline in productivity
D)A decline in labor supply

Accepted Answer

Real Business Cycle Theory emphasizes real shocks, such as changes in technology or productivity, as the main drivers of economic cycles. A decline in the money supply is more related to monetary policy and is not a primary factor in Real Business Cycle Theory, making it the least likely cause of a recession according to this theory.

Question 18

The theory that real shocks to the economy are the primary cause of business cycles is
A)monetarism.
B)Keynesian theory.
C)real business cycle theory.
D)Hamiltonian theory.

Accepted Answer

Real business cycle theory argues that business cycles are driven by real, external factors such as technology shocks, changes in productivity or shifts in global economic conditions. It stands in contrast to Keynesian theory, which emphasizes the role of government intervention and monetary policy in stabilizing the economy, and monetarism, which stresses the importance of controlling the money supply. Hamiltonian theory is not relevant to this question.

Question 19

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

Accepted Answer

The sentence explicitly mentions "correlation" as the measure used to match the data in terms of how closely key macroeconomic variables move with GNP over the business cycle. The other options (B, C, and D) are not mentioned or implied in the sentence.

Question 20

Real business cycle theorists think that most business cycle fluctuations are caused by shocks to
A)the production function.
B)the size of the labor force.
C)the real quantity of government purchases.
D)the spending and saving decisions of consumers.

Accepted Answer

Real business cycle theorists believe that most business cycle fluctuations are caused by shocks to the production function, such as changes in technology, input prices, or productivity. This view emphasizes the role of supply-side factors in driving economic fluctuations, in contrast to Keynesian economics which emphasizes demand-side factors such as consumer spending and government policy.

Quiz 10: Classical Business Cycle Analysis

The most common measure of productivity shocks is known as

An adverse supply shock would directly labor productivity by changing the amount of output that can be produced with any given amount of capital and labor.It would also indirectly average labor productivity through changes in the level of employment.

What do RBC economists mean by the term calibration?

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

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

A temporary beneficial productivity shock would

When RBC economists work out a detailed numerical example of a more general theory,they are performing

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

A temporary adverse productivity shock would

Which of the following is an example of a productivity shock?

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

Research on productivity shocks has shown that

The distinction between real and nominal shocks is that

In the classical IS-LM/AD-AS model,a beneficial productivity shock would output, the real interest rate,and the price level.

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

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

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

The theory that real shocks to the economy are the primary cause of business cycles is

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.

Real business cycle theorists think that most business cycle fluctuations are caused by shocks to