Question 1

Both new Keynesian and new classical cycle theories claim that

Accepted Answer

Both new Keynesian and new classical cycle theories agree that unexpected changes in aggregate demand can trigger a business cycle, as these changes can lead to fluctuations in output and employment.

Question 2

Which business cycle theory emphasizes that, because of previously negotiated wage agreements, both expected and unexpected fluctuations in aggregate demand can change real GDP?

Accepted Answer

The new Keynesian cycle theory argues that wage contracts are not perfectly flexible and may lead to sticky wages, causing fluctuations in real GDP in response to changes in aggregate demand. Both expected and unexpected fluctuations can have an impact on the economy because of these pre-negotiated wage agreements. The other options (A, B, D, and E) do not focus specifically on the impact of wage agreements on business cycles.

Question 3

Which of the following are business cycle theories that regard fluctuations in aggregate demand as the factor tha business cycles? I.Keynesian cycle theory
II.real business cycle theory
III.monetarist cycle theory

Accepted Answer

Keynesian cycle theory and monetarist cycle theory both regard fluctuations in aggregate demand as the primary factor that causes business cycles. Real business cycle theory, on the other hand, suggests that business cycles are driven by changes in productivity and technology. Therefore, the correct choice is B, which includes only Keynesian cycle theory and monetarist cycle theory.

Question 4

The _______ cycle theory states that only unexpected fluctuations in aggregate demand bring fluctuations in real GDP around potential GDP.

Accepted Answer

The new classical cycle theory posits that it is primarily unexpected changes in aggregate demand or supply that cause fluctuations in real GDP around its potential level. This theory emphasizes the role of rational expectations and market clearing.

Question 5

According to _______ theory, a decrease in productivity growth shifts the _______.

Accepted Answer

The answer of According to _______ theory, a decrease in...

Question 6

Which of the following is not a mainstream theory of the business cycle?

Accepted Answer

The answer of Which of the following is not a...

Question 7

The key ripple effect in real business cycle theory is the _______ decision and it depends on the _______.

Accepted Answer

Real business cycle theory posits that business cycles are the result of real shocks, such as productivity shocks, and that fluctuations in employment and output are efficient responses to these shocks. In this theory, the key decision is when to work, as fluctuations in labor supply drive fluctuations in output. This decision depends on the real interest rate, which signals the return to saving versus consuming, and hence affects the opportunity cost of leisure.

Question 8

According to the real business cycle theory, what effects follow from a change in productivity? I.Investment demand changes.
II.The demand for labour changes.
III.Government expenditure changes.

Accepted Answer

According to the real business cycle theory, a change in productivity leads to changes in investment demand and the demand for labor. This is because an increase in productivity leads to an increase in output, which leads to a higher demand for labor and capital. As a result, firms will invest more in capital, thereby increasing investment demand. However, a change in productivity does not necessarily lead to changes in government expenditure, so option III is incorrect.

Question 9

New Keynesian economists believe that _______ is influenced by _______.

Accepted Answer

New Keynesian economists believe that today's money wage rate is influenced by yesterday's rational expectations of the price level, as wages are often set based on expected future prices.

Question 10

The factor leading to business cycles in the _______ cycle theory is unexpected fluctuations in aggregate demand while in the _______ cycle theory both unexpected and expected fluctuations in aggregate demand are factors that lead to business cycles.

Accepted Answer

In the new classical cycle theory, unexpected fluctuations in aggregate demand lead to business cycles. In the new Keynesian cycle theory, both unexpected and expected fluctuations in aggregate demand can cause business cycles.

Question 11

_______ states that the main source of economic fluctuations is fluctuations in business confidence.

Accepted Answer

Keynesian cycle theory argues that fluctuations in business confidence, among other factors such as interest rates and government policies, can lead to economic fluctuations. Monetarist cycle theory focuses on fluctuations in the money supply, while real business cycle theory and new classical cycle theory emphasize the role of technology shocks and changes in labor supply in driving economic fluctuations.

Question 12

In new classical cycle theory, _______ bring fluctuations in real GDP around potential GDP.

Accepted Answer

According to new classical cycle theory, unexpected changes in aggregate demand, such as changes in consumer or business confidence, can cause fluctuations in real GDP around potential GDP. This is due to the assumption that markets are efficient and will eventually adjust to any shocks or changes, meaning that any expected changes in productivity or aggregate demand would already be accounted for in the market's expectations.

Question 13

According to _______, the business cycle is the result of aggregate demand growing at a fluctuating rate.

Accepted Answer

The answer of According to _______, the business cycle is...

Question 14

The key difference between new classical cycle theory and new Keynesian cycle theory is that the new classical cycle theory believes that _______ while the new Keynesian cycle theory believes that _______.

Accepted Answer

New classical cycle theory believes that only unexpected changes in aggregate demand change real GDP while new Keynesian cycle theory believes that both expected and unexpected changes in aggregate demand change real GDP.

Question 15

Use the figure below to answer the following questions.
  Figure 12.1.1
-Refer to Figure 12.1.1.Suppose the economy moves from point D to point B.According to the monetarist theory of the business cycle, what could have caused this movement?

Accepted Answer

According to the monetarist theory of the business cycle, changes in the economy are largely driven by changes in the quantity of money. An increase in the growth rate of the quantity of money could have caused the economy to move from point D to point B.

Question 16

In real business cycle theory, a decrease in productivity leads to all of the following events except

Accepted Answer

In real business cycle theory, a decrease in productivity typically leads to a decrease in the demand for labor (as firms produce less and thus need fewer workers) and a decrease in the supply of labor (as workers choose to enjoy more leisure when the return to working decreases). It also leads to a decrease in the demand for loanable funds (as there are fewer profitable investment opportunities) and can lead to a fall in the real interest rate (as the demand for loanable funds decreases). However, it does not lead to a rise in the real wage rate; instead, the real wage rate is likely to fall because the demand for labor decreases.

Question 17

In the Keynesian business cycle theory, business cycles begin with a change in

Accepted Answer

In the Keynesian business cycle theory, business cycles often begin with a change in business confidence, which affects investment and spending decisions, leading to fluctuations in economic activity.

Question 18

The new classical theory argues that the primary factor leading to business cycles is

Accepted Answer

The new classical theory posits that business cycles are primarily caused by unexpected fluctuations in aggregate demand, as firms and consumers adjust their behaviors based on the information available to them, leading to economic expansions and contractions.

Question 19

"Intertemporal substitution" in real business cycle theory refers to the change in the _______ as a result of the change in the real interest rate.

Accepted Answer

Intertemporal substitution in real business cycle theory refers to the idea that individuals may choose to adjust the amount of labour they supply in response to changes in the real interest rate. Specifically, when the real interest rate increases, individuals may choose to work more in order to take advantage of the higher return on savings, whereas when the real interest rate decreases, individuals may choose to work less and consume more in the present. Therefore, the change in the real interest rate affects the supply of labour, making E the correct answer.

Question 20

Use the figure below to answer the following questions.
  Figure 12.1.1
-Refer to Figure 12.1.1.Suppose the economy moves from point A to point C.According to the monetarist theory of the business cycle, what could have caused this movement?

Accepted Answer

The answer of Use the figure below to answer the...

Quiz 12: The Business Cycle, Inflation, and Deflation

Both new Keynesian and new classical cycle theories claim that

Which business cycle theory emphasizes that, because of previously negotiated wage agreements, both expected and unexpected fluctuations in aggregate demand can change real GDP?

Which of the following are business cycle theories that regard fluctuations in aggregate demand as the factor tha business cycles? I.Keynesian cycle theory II.real business cycle theory III.monetarist cycle theory

The _______ cycle theory states that only unexpected fluctuations in aggregate demand bring fluctuations in real GDP around potential GDP.

According to _ theory, a decrease in productivity growth shifts the _.

Which of the following is not a mainstream theory of the business cycle?

The key ripple effect in real business cycle theory is the _ decision and it depends on the _.

According to the real business cycle theory, what effects follow from a change in productivity? I.Investment demand changes. II.The demand for labour changes. III.Government expenditure changes.

New Keynesian economists believe that _ is influenced by _.

The factor leading to business cycles in the _ cycle theory is unexpected fluctuations in aggregate demand while in the _ cycle theory both unexpected and expected fluctuations in aggregate demand are factors that lead to business cycles.