UNIT 4 – Coda – Flashcards

If the central bank increases the growth rate of money supply, what will happen to an economy in the long run? A) Nothing happens to real GDP growth; both inflation rate and nominal interest rate increases. B) Both growth rate of real GDP and price level increase. C) Nothing happens to real GDP growth; Inflation rate increases but nominal interest rate stays the same. D) Nothing happens to inflation rate; but real GDP decreases.

According to the Tylor rule, what does the US monetary policy do? A) Reduce money supply during recession and increase money supply when inflation rate goes up. B) Increase money supply during recession and when inflation rate goes up. C) Decrease money supply during recession and when inflation rate goes up. D) Increase money supply during recession and reduce money supply when inflation rate goes up.

Real investment tends to be A) procyclical and more variable than real GDP. B) procyclical and less variable than real GDP. C) countercyclical and less variable than real GDP. D) countercyclical and more variable than real GDP.

The classical dichotomy states that A) real markets determine nominal outcomes, not the reverse. B) demand is separate from supply. C) money is superneutral. D)goods markets are separated from labor markets.

If the correlation between GDP and y is 0.55, we say y is A) procyclical. B) acyclical. C) countercyclical. D) tricyclical.

According to the Real Business Cycle (RBC) theory, which of the following is a correct description of labor market behavior after a bad productivity shock hits the economy? A) Lower productivity shifts the labor demand curve to the right. The labor supply of households is fixed. The new equilibrium has a lower wage and fixed labor input. B) Lower productivity shifts the labor demand curve to the right. The labor supply of households is adjustable. The new equilibrium has a lower wage and a lower labor input. C) Lower productivity shifts the labor demand curve to the left. The labor supply of households is fixed. The new equilibrium has a lower wage and fixed labor input. D) Lower productivity shifts the labor demand curve to the left. The labor supply of households is adjustable. The new equilibrium has a lower wage and a lower labor input.

If an increase of inflation rate is accompanied by a reduction of unemployment rate, we say that A) the National accounts identity holds. B) Ricardian equivalence holds. C) the Phillips curve holds. D) the Fisher equation holds.

Real business cycle (RBC) theory argues that the primary cause of economic fluctuation in A) oil price. B) total factor productivity. C) government spending. D) households preference.

Money neutrality states that A) changes in inflation do not affect real aggregates. B) with money, one can still use the representative agent. C) monetary policy is independent from politics. D) changes in money do not affect real aggregates.

According to Real Business Cycle theory, which of the following correctly describes households consumption-saving response, when they are hit by an unfavorable productivity shock. A) Households experience a temporary income decrease today. They consume less today and increase their saving. B) Households experience a temporary income decrease today. They consume more today and do not change their saving. C) Households experience a temporary income decrease today. They consume less today and decrease their saving. D) Households experience a temporary income decrease today. They consume less today and do not change their saving.