According to the Real Business Cycle theory O Short-run fluctuations are determined by supply-side factors so there is no difference with the growth trend O Output is always equal to the natural rate of output and therefore constant O There is no growth trend but only fluctuations around the natural rate of output O Short-run fluctuations are determined by demand-side factors so there is no difference with the growth trend

According to the Real Business Cycle theory O Short-run fluctuations are determined by supply-side factors so there is no difference with the growth trend O Output is always equal to the natural rate of output and therefore constant O There is no growth trend but only fluctuations around the natural rate of output O Short-run fluctuations are determined by demand-side factors so there is no difference with the growth trend

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter10: Dynamic Change, Economic Fluctuations, And The Ad-as Model

Section: Chapter Questions

Problem 12CQ

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Most economists believe that classicalmacroeconomic theorya. is valid only in the long run.b. is valid only in the short run.c. is always valid.d. is never valid.
Suppose the U.S. economy is initially (year 2020) in both short-run and long-run equilibrium and it is described by following functions: AD function: Y=12-P SRAS function: Y=YN+P-Pe where the expected price is Pe=2 and the natural rate of output is YN=10. Then, an expansion in AD occurs in year 2021 such that the new AD function is: Y=14-P Compute the Real GDP growth rate from 2020 to 2021 if the economy is now in short-run equilibrium only. (Express your answer in percent omitting the symbol %. For example, for 2% enter 2)
Assume that an economy operates according to the sticky-wage model. The nominal wagewas set to make labor supply and labor demand equal when the expected price levelequaled 120 (as measured by the consumer price index).a. Use a graph of the labor market to illustrate what happens to the quantity oflabor employed if the actual price level over the time period when wages arestuck equals 110.b. Use a graph of the production function to illustrate how the quantity of outputproduced changes if the actual price level equals 110 when the expected pricelevel is 120.c. Given the unexpectedly low price level, will this economy be operating above,below, or at the natural rate?
Which of te following does not contribute to the real business cycle explanation of business cycle? Aggregate supply fluctutates because of fluctuations in the demand labour Output fluctuates becaus of fluctuations in aggregate supply? Wage flexibility keeps output close to its potential level Labour deman might fall if technology increases faster than expected
In section 5.2 we showed that if the money stock follows a mst-order autoregressive process with c (a) Give the economic intuition behind this result. (b) Suppose that the growth rate of money follows a stable mst-order autoregressive process. Solve for the process for the price level. (c) Does the same characterization hold with the addition of the words "relative to trend" following high and low?
Consider a closed economy. A. Provide a graphical analysis of the effect of a temporary but persistent increase in total factor productivity (TFP) on current employment, current output, current investment, current real wages, current prices and current real interest rates in terms of the Real Business Cycle Model. Explain why each of the curves in your analysis shifts in response to the shock. B. Do we observe changes in total factor productivity? How are they calculated? C. Why do we assume that changes to TFP are persistent?
According to the Real Business Cycle Theory, in an expansion caused by a permanent increase in technology (i.e. both z and z' increase), a. r decreases, Y decreases, and P decreases. b. r decreases, Y increases, and P increases. c. r increases, Y decreases, and P decreases. d. r decreases, Y increases, and P decreases..
TRUE/FALSE. Brietly explain your answer. a) The real business cycle model is very helptul because we can always identity the sources of total factor productivity shocks. b) An increase in financial market frictions can cause the natural rate of interest to increase
real business cycle theory suggest that _______ not important in explaining short-term fluctuations around actual output a. aggregate supply is b. potential output is c. real variables are d. aggregate demand is
Q3: Consider a baseline long run equilibrium where output is 22 trillion dollars, and the price level is 100. Note: In the Long Run Steady State Equilibrium, Price expectation is the same as price level & unemployment is 5% or lower. None of these are guaranteed in the short run. Usually, short run equilibrium is called an underemployment equilibrium.• Starting from the baseline, suppose COVID 19 hits this economy. If this disease only makes workers sick (everything else remaining constant) can you show how would the short run steady state equilibrium will be disrupted? A Keynesian Macroeconomist proposes the use of a massive expansionary fiscal policy. Would you agree, disagree?• You should answer each step in the following answer 3 table. Q4: Continuing from Question 3: What will be the shape of the Phillips Curve because of the Keynesian Colleague's massive expansionary fiscal policy (from Question 3)? Why? Please explain in detail.•You should answer each step in the following…
question 3Consider the AS-AD and three-equations models of a closed economy discussed in the course.(a). Write down the expressions for the AS and AD curves and interpret the expressions: what is the intuition behind the two curves? What must be true of the model parameters and variables in the long-run equilibrium, i.e. in the steady state?(b). Analyse the effects of an oil supply shock that causes a temporary increase in inflation, using the three-equation model. Assume that the shock lasts for one-period and then assumes the value 2%. Describe the mechanisms that bring the economy back to long-run equilibrium. What happens to aggregate demand?(c). Consider an economy that starts out in steady state when the central bank decides to make the inflation target more ambitious. Analyse the effects of a decrease in the inflation target from ? to ??. Explain the mechanisms behind the adjustment to the new steady state.
1 1A) Using the static AD/AS model to explain how the job keeper (wage subsidy) policy worked to sustain the economy even though unemployment rate in Australia had increased during Covid-19 period? 1B) justify in detail the difference between U shaped recoveries and V shaped recoveries?