Macroeconomics (9th Edition)
9th Edition
ISBN: 9780134167398
Author: Andrew B. Abel, Ben Bernanke, Dean Croushore
Publisher: PEARSON
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Chapter 10, Problem 4RQ
To determine
The facts pertaining to business cycles that have been successfully explained by the RBC theory.
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Explain the basic arguments stated by the Real-Business-Cycle (RBC) Theory, regarding economic fluctuations.
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Macroeconomics (9th Edition)
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- ) 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_forwardConsidering the efforts put forward by the Fed during the last recessionary crisis and prior, are there still any tools available to the Fed to utilize as we move from deflation into an inflationary period?arrow_forward. How would you expect velocity to typically behave overthe course of the business cycle?arrow_forward
- In the RBC Model, assume you observe an initial inflation rate of 2%, and the spending level is 4%. If economists believe that deflation is a guaranteed sign of a recession, which of the following new spending levels might imply the economy is in a recession? a. 1.5% b. 2.3% c. 2.75% d. all of the above e. a and b onlyarrow_forwardCompare and contrast the Keynesian and Monetarist in business cycle theoriesarrow_forwardevaluate the role of floating rates as automatic stabilisers when exogenous shocks hit the economy.arrow_forward
- Which should central banks focus on more, unemployment or inflation? Why? Please cite sources to back up your assertions.arrow_forwardHow can the real business cycle model explain the behavior of the money supply over the business cycle?arrow_forwardWhich of the following policies in pro-cyclical? Select one: a. The Fed sells government bonds in an open market operation during a recession. b. Congress lowers government spending during an expansion. c. The Fed raises the discount rate during an expansion. d. Congress lowers income tax during a recession. e. Congress raises corporate taxes during an expansion.arrow_forward
- Explain the impact effect of this shock on output, inflation, and the real interest rate. Explain the dynamic response of output, inflation, and interest rates in subsequent periods. Does the economy converge back to the same long-run equilibrium? Explain how the central bank responds to inflation and the importance of the monetary authority following the Taylor principle. How would your answer to (B) change if the shock lasted for several periods (instead of one period) before reverting to zero?arrow_forwardDiscuss the main ideas for the Real Business Cycle (RBC) Revolution and the NewKeynesian (NK) Revolution in macroeconomics.a) start by defining the key features of RBC macrob) continue by defining the key features of NK macroc) discuss their similaritiesd) discuss where they diverge and how their differences affect policy conclusionsarrow_forward
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