(a) Real business cycle models are often criticized for their lack of internal propaga- tion. What do we mean by that? How could we improve the internal propaga- tion mechanism? (b) "Depending on the persistence of a fiscal policy shock, investment may in- crease or decrease during the early phases of adjustment in the RBC model." True or false? Explain.

(a) Real business cycle models are often criticized for their lack of internal propaga- tion. What do we mean by that? How could we improve the internal propaga- tion mechanism? (b) "Depending on the persistence of a fiscal policy shock, investment may in- crease or decrease during the early phases of adjustment in the RBC model." True or false? Explain.

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter14: Macroeconomic Policy: Tradeoffs, Expectations, Credibility, And Sources Of Business Cycles

Section: Chapter Questions

Problem 9E

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