The three components of any DSGE model are:
A) endogenous variables, shocks, and economic "features."
B) TFP, the Solow residual, and Cobb-Douglas production.
C) labor supply, demand, and the real wage.
D) exogenous variables, endogenous variables, and normal variables.
E) interest rates, inflation, and unemployment.

Question

Quizplus · Accepted Answer

DSGE models consist of endogenous variables (variables that are determined within the model), shocks (random disturbances to the economy), and economic "features" that capture the relationships between the different variables in the model. TFP, the Solow residual, and Cobb-Douglas production are concepts related to growth theory, while labor supply, demand, and the real wage are components of labor market models. Exogenous variables and normal variables are terms that do not directly relate to DSGE modeling. Interest rates, inflation, and unemployment are examples of endogenous variables that may be included in a DSGE model, but they do not encompass all three components of the model.

The Three Components of Any DSGE Model Are