Macroeconomics
10th Edition
ISBN: 9780134896441
Author: ABEL, Andrew B., BERNANKE, Ben, CROUSHORE, Dean Darrell
Publisher: PEARSON
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Chapter 10, Problem 2RQ
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To describe:Two main components of theory of business cycle and its description for real business cycle theory.
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What are the key ideas of the real business cycle model? How does it explainbusiness cycle fluctuations?
Explain in details with the help of graphs.
Explain in detail how real business cycle theory is different from the rational expectaion theories of business cycle.?
13) Detail the workings of the real business cycle model.
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- How is the natural rate of unemployment Illustrated in an AD/AS model?arrow_forwardHow is cyclical unemployment illustrated in an AD/AS model?arrow_forwardEconomists expect that as the labor market continues to tighten going into the latter part of 2015 that workers should begin to expect wage increases in 2015 and 2016. Assuming this occurs and it was the only development in the labor market that year, how would this affect the AS curve? What if it was also accompanied by an increase in worker productivity?arrow_forward
- 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 expectedarrow_forwardWhat part of the business cycle (expansion, contraction, peak, trough) is the economy likely in based on the graph above? Describe the likely economic conditions in this economy.arrow_forwardHow real business cycle theory is different from the rational expectation theories of business cycle? explain in detail Book MankiwChapter 19page 528arrow_forward
- How do proponents of Real Business Cycle Theory explain thebusiness cycle, and why do they object to government intervention tosmooth the business cycle?arrow_forward) Real business cycle (RBC) theorists agree that agents optimize and that markets clear, meaning that business cycles are an equilibrium condition. What are some of the criticisms of real business cycle theory?arrow_forwardComplete the sentence: “According to Real Business Cycle Theories of the business cycle, ___________________ should be highlighted and supported by policies. Group of answer choices Aggregate demand Aggregate supply Aggregate employment Aggregate investmentarrow_forward
- Compare Hicks theory of business cycle and Keynesian theory of business cycle.arrow_forwardConsider the following statements about the business cycle. Which of the following statements is incorrect ? A. A rise in economic activity from the cycle trough to the peak indicates that the economy is in an expansion. B. A fall in economic activity from the cycle peak to the trough indicate that the economy is in a recession. C. The business cycle is a regular fluctuation of real GDP around potential GDP that is predictable. D. The business cycle is a periodic cycle in real GDP and employment.arrow_forwardIn the context of Real Business Cycle theory explain the role played by the intertemporal substitution of labour supply in propagating the effects of real shocks in the economy. Do you think this propagation mechanism represents a good explanation for the business cycles we see in reality? Use a diagram to explain your answer.arrow_forward
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