Question 1

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 a sudden change in the efficiency or output of production processes. The introduction of new management techniques can lead to an increase in productivity and efficiency, making option A the correct answer. Changes in taxes, government transfer programs or money supply may have an effect on the economy, but they are not considered 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

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 fluctuations in economic activity are largely the result of shocks to the underlying production technology of the economy. These shocks can affect the productivity of labor and capital, leading to changes in output, employment, and other macroeconomic variables. While other factors such as changes in government spending and consumer behavior may also influence the business cycle, real business cycle theorists argue that these are secondary effects of the underlying productivity shocks.

Question 4

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

Calibration is the process of estimating the values of parameters in a model using observed data. RBC economists use calibration to fit their theoretical models to real-world data and to make quantitative predictions about the economy. Econometrics is a broader term that encompasses the statistical techniques used to estimate and test economic models. Number theory and topology are not directly relevant to the process of modeling and calibrating economic theories.

Question 5

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 directly affect the real side of the economy, such as changes in productivity, natural disasters, or changes in technology. They can affect the IS curve or the FE line, but they usually do not affect the LM curve directly, as they do not influence the money market. Nominal shocks, on the other hand, affect the price level or inflation rate and can have a direct impact on the LM curve. Therefore, the distinction between real and nominal shocks is that real shocks affect the real side of the economy, while nominal shocks affect the monetary side. Choice C is the best choice because it correctly identifies that real shocks can affect either the IS curve or the FE line, but not necessarily the LM curve.

Question 6

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 is referring to the relationship or correlation between key macroeconomic variables and GNP, and indicates that Prescott's calibrated RBC model was able to match this relationship or correlation closely with the actual data. The other options (B) interdependence, (C) gamma coefficient, and (D) sigma ratio do not fit the context of the sentence or the topic of macroeconomic variables and GNP.

Question 7

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 8

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 the correlations in their models to the data, they are looking at the degree to which different economic variables move together. This is because a central assumption of RBC models is that economic fluctuations are primarily driven by changes in technology, which affect all sectors of the economy and cause different variables to move together. By comparing the model's correlations to those in the data, economists can assess whether the model captures this important feature of the business cycle.

Question 9

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, also known as the degree of volatility. Option A talks about the mechanism by which output responds to shocks; Option B is related to the correlation between different variables and Option D talks about the comovement between different economic variables.

Question 10

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 preferences or changes in the availability of resources. Changes in the money supply or government purchases are considered to be secondary factors that may amplify or dampen the effects of these primary causes, but they are not considered to be primary causes themselves.

Question 11

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 12

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 posits that fluctuations in productivity and technology are the main drivers of economic cycles, rather than changes in monetary or fiscal policy (as in Keynesian theory) or fluctuations in the money supply (as in monetarism). Hamiltonian theory is not a commonly recognized economic theory.

Question 13

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 14

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 theory, typically using actual data to estimate specific parameters and make predictions. This allows economists to test the validity of their theories and improve their accuracy.

Question 15

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 is the portion of output growth that cannot be explained by changes in inputs such as capital and labor.

Question 16

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 on productivity shocks suggests that even small productivity shocks can explain large business cycle fluctuations. This implies that productivity shocks have a significant impact on aggregate output and macroeconomic performance, contrary to option A and D. Additionally, while there have not been many identifiable productivity shocks since World War II (option B), this does not negate the positive effect of productivity shocks on the economy when they do occur.

Question 17

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

The level of government transfer programs does not directly affect the productivity of the economy. The other choices all have the potential to affect productivity in different ways. A is an example of improving productivity through better management practices, B is an example of changes in the external environment affecting production, and D is an example of a natural factor that could affect productivity, particularly in industries that rely on weather conditions.

Question 18

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 level of employment, as firms would need to produce more to meet the increase in demand. This would lead to an increase in production and output in the short term. However, it would not necessarily shift the labor supply curve or increase future income or the expected future marginal product of capital.

Question 19

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 decrease the level of employment as firms adjust their production level to the lower productivity. This would lead to a temporary decrease in output and income. However, it is unlikely to impact the long-term marginal product of labor or capital, as productivity shocks are generally temporary in nature.

Question 20

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.

Quiz 10: Classical Business Cycle Analysis

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

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.

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

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

The distinction between real and nominal shocks is that

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.

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

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

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

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

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

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

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

What do RBC economists mean by the term calibration?

The most common measure of productivity shocks is known as

Research on productivity shocks has shown that

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

A temporary beneficial productivity shock would

A temporary adverse productivity shock would

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