Macroeconomics (9th Edition)
9th Edition
ISBN: 9780134167398
Author: Andrew B. Abel, Ben Bernanke, Dean Croushore
Publisher: PEARSON
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Chapter 10, Problem 1WWMD
To determine
The total factor productivity by using the Cobb-Douglas production function and annual data of real GDP, capital stock and civilian employment along with its comparison with business cycle peaks and troughs.
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According to the real business cycle theory, productivity shocks are an important source of business cycles. Using the Cobb–Douglas production function and annual data since 1961, calculate and graph U.S. total factor productivity. Use real GDP for Y, the capital stock from the source listed in Table 3.1 for K, and civilian employment for N. Look for periods marked by sharp changes up or down in productivity. How well do these changes match up with the dates of business cycle peaks and troughs?
Is fiscal policy, say an increase in government expenditures (G), effective according to the Real Business Cycle (RBC) theory? If it is, should it be used? Explain by using production function, labor market, goods market and asset market equilibrium tools.
Use a properly labeled graph to illustrate the relationships between full-employment (or potential or natural rate of output) output ?? and the boom-bust of business cycles. Explain how actual unemployment ?, frictional unemployment ??, structural unemployment ??, cyclical unemployment ??, natural unemployment ??, actual output ?, and ?? are related to each other throughout a business cycle. Show your step-by-step derivation with explanation related to the graph or a zero will be assigned
Chapter 10 Solutions
Macroeconomics (9th Edition)
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- Assume that output began at its natural level. By using AD-AS (upward sloping) and Phillips curves, analyze the short and long run effects for each of these situations: a) The government decreases the investment tax credit in order to discourage the investment. b) The Malaysian Government increases the assistance to B40 through various stimulus package due to the impact of Covid 19 Pandemic on this groups' income. c) The evolution of technological advancement brings about great impact to the economy.arrow_forwardTRUE/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 increasearrow_forwardExplain how the real business cycle model can explain why the price level is countercyclical at some times, and uncorrelated with output at other times.arrow_forward
- 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?arrow_forwardAccording to the Austrian business cycle theory, a key feature of a deflationary depression is A) an increase in money and credit B) unrepayable debts lead to financial system losses C) businesses that are too big to fail must be subsidized D) higher pricesarrow_forwardConsider a closed economy. 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. Do we observe changes in total factor productivity? How are they calculated? Why do we assume that changes to TFP are persistent? Compare graphically the behaviour of the current Average Productivity of Labour and Employment in the Real Business Cycles Model and the Coordination Failure Model following a temporary increase in current total factor productivity. Are the two different and how do these results compare to the data?arrow_forward
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