question

Keynes used the term "animal spirits" to represent

answer

fluctuations in business confidence

question

Both the new classical and new Keynesian business cycle theories agree that

answer

the money wage rate is influenced by rational expectations of the price level

question

In real business cycle theory, all of the following events can be sources of fluctuation in productivity except___. 1. climate fluctuations 2. changes in the growth rate of money 3. the pace of technological change 4. natural disasters

answer

2. changes in the growth rate of money

question

Using the monetarist model, place the following events in order in which they occur in the business cycle. 1. Money wages fall and the SAS curve shifts rightward 2. The Federal Reserve decreases the growth rate of the quantity of money 3. The AD curve shifts leftward

answer

2, 3, 1

question

What theory maintains that the money wage rate always adjusts freely?

answer

real business cycle theory

question

The key ripple effect in real business cycle theory is the ____ decision and it depends on the ____.

answer

when-to-work; real interest rate

question

According to the new Keynesian cycle theory of the business cycle, which of the following can trigger a business cycle expansion? 1. an unexpected increase in the quantity of money 2. an expected increase in the quantity of money 3. an expected increase in government expenditures

answer

1, 2, & 3

question

According to the real business cycle theory, the immediate effects from a change in productivity include which of the following? 1. Investment demand changes 2. Demand for labor changes 3. Government expenditures change

answer

1 & 2

question

Which of the following describes the Keynesian approach to the business cycle? 1. Unanticipated shocks to aggregate supply drive expansions and recessions 2. The Keynesian theory is a real business cycle model of the economy 3. A decrease in business confidence can trigger a recession

answer

3 only

question

According to RBC theory, the main source of economic fluctuations is a decrease in ___, which ___ investment demand, ___ the demand for loanable funds, and ___ the real interest rate.

answer

productivity growth; decreases; decreases; lowers

question

The decrease in productivity growth also ___ the demand for labor, ___ the supply of labor, ___ employment, and ___ the real wage rate.

answer

decreases; decreases; decreases; lowers

question

According to mainstream business cycle theory, ____ grows at a steady rate and ____ grows at a fluctuating rate.

answer

potential GDP; aggregate demand

question

Critics of the real business cycle theory claim that

answer

the intertemporal substitution effect is too weak to account for changes in labor supply.

question

"Intertemporal substitution" in labor supply describes changes in labor supply in response to changes in

answer

the real interest rate.

question

Which of the following pieces of evidence is most consistent with monetarist theory? 1. productivity and GDP move closely together 2. Changes in real GDP and the quantity of money move closely together 3. Money wage rates take some time to adjust to price changes 4. Labor supply decisions do not seem to depend on real interest rates

answer

2. Changes in real GDP and the quantity of money move closely together

question

According to mainstream business cycle theory, the money wage rate is sticky and consequently if aggregate demand grows faster than potential GDP, an

answer

inflationary gap emerges.

question

A larger than expected increase in aggregate demand will lead to ____ to the ____ of the business cycle.

answer

an expansion; new classical cycle theory

question

Which of the following are business cycle theories that regard fluctuations in aggregate demand as a factor creating business cycles? 1. Keynesian cycle theory 2. real business cycle theory 3. monetarist cycle theory

answer

1 & 3

question

Based on the Keynesian theory of the business cycle, if the economy is at its full-employment equilibrium and aggregate demand increases then

answer

the price level and real GDP both increase.

question

Which of the following is TRUE regarding the monetarist theory of the business cycle? 1. Monetarists assume that the quantity of money increases at a constant rate 2. Fluctuations in interest rates cause business cycles 3. Changes in the growth rate of the quantity of money affect aggregate demand

answer

3 only

question

In 2008, when a recession started, the growth of government expenditures on goods and services doubled from its growth in 2007. According to aggregate demand theories of the business cycle

answer

government expenditure was not a cause of the recession.

question

According to the RBC theory, the source of the business cycle is ___, which result mainly from ___.

answer

fluctuations in productivity; fluctuations in the pace of technological change

question

They key difference between the new classical theory of the business cycle and the new Keynesian theory of the business cycle is that the new classical theory believes that ____ while the new Keynesian theory believes that ___.

answer

only unexpected changes in aggregate demand will change real GDP; both expected and unexpected changes in aggregate demand will change real GDP

question

New Keynesian economists believe that ___ is influenced by ___.

answer

today's money wage rate; yesterday's rational expectations of the price level

question

The new classical theory predicts that an unexpected increase in aggregate demand ____ create a business cycle and an expected increase in aggregate demand ___ create a business cycle.

answer

will; will not

question

In an expansion, an increase in the rate of technological change ___ investment demand. The real interest rate ___.

answer

increases; rises

question

Suppose that the business cycle in the US is best described by the RBC theory. An advance in technology increases productivity. The when-to-work decision depends on the real interest rate. The ___ the real interest rate, mother things remaining the same, the ___ is the supply of labor today. RBC theorists believe the when-to-work effect is ___.

answer

higher; larger; large

question

The main criticisms of RBC theory include all of the following except: 1. the money wage rate is sticky, and to assume otherwise is at odds with a clear fact 2. real business cycle theory relies too heavily the role of money in the economy to make its predictions 3. intertemporal substitution is too weak a force to account for large fluctuations in labor supply and employment with small real wage rate changes 4. productivity shocks are as likely to be caused by technological change

answer

2

question

Defenders of RBC theory claim ___. 1. RBC theory is consistent with investment demand decisions and information on the distribution of income between labor and capital 2. RBC theory is consistent with labor supply and labor demand decisions 3. RBC theory explains the macroeconomic facts about the business cycle and is consistent wtih the facts about economic growth

answer

ALL

question

The mainstream business cycle theory is that ___ grows at a steady rate while ___ grows at a fluctuating rate.

answer

potential GDP; aggregate demand

question

In mainstream business cycle theory, the money wage rate is ___.

answer

sticky

question

If aggregate demand grows faster than potential GDP, ___ gap emerges and if it grows more slowly than potential GDP, ___ gap emerges.

answer

an inflationary; a recessionary

question

One assumption of the new classical model is that

answer

people make rational expectations about aggregate demand

question

Suppose the growth rate of the quantity of money increased from 5% per year to 8% per year. According to the ____, this event would trigger a business cycle expansion.

answer

monetarist cycle model

question

According to the ___ theory, technological change can be so rapid that some existing capital becomes obsolete and ___.

answer

real business cycle; productivity falls

question

According to the real business cycle theory, technological change

answer

happens at an uneven pace.

question

The Keynesian explanation of the business cycle rests on several concepts, including

answer

rigid money wage rates.

question

In ___ cycle theory, fluctuations in investment driven by fluctuations in business confidence are the main source of fluctuations in aggregate demand.

answer

Keynesian

question

In ___ cycle theory, fluctuations in both investment and consumption expenditure, driven by fluctuations in the growth rate of the quantity of money, are the main source of fluctuations in aggregate demand.

answer

Monetarist

question

In ___ cycle theory, the rational expectation of the price level, which is determined by potential GDP and expected aggregate demand, determines the money wage rate and the position of the SAS curve.

answer

New Classical

question

In ___ cycle theory, past rational expectations of the current price level influence the money wage rate and the position of the SAS curve.

answer

new Keynesian

question

T/F: Economists have not been able to isolate the RBC theory impulsive.

answer

False

question

In the monetarist business cycle theory, increases in money growth temporarily ___ real GDP and ___ the price level.

answer

increase; rise

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