Question 1

The main difference between the New Keynesian model and the basic monetary intertemporal model is that in the New Keynesian model

Accepted Answer

A)  menu costs are insignificant.
B)  the price level is sticky in the short run.
C)  firms are backward-looking.
D)  wages are sticky in the short run.
E)  prices adjust quickly to equate the supply and demand for goods.

Question 2

Negative nominal interest rates work because

Accepted Answer

A)  they are good for banks.
B)  they cause consumption to go down.
C)  they reduce investment.
D)  nominal interest rates cannot go above zero.
E)  they act to reduce the output gap.

Question 3

The argument that the nominal wage is fixed because of long-term labour contracts

Accepted Answer

A)  closely fits the real world.
B)  means that productivity shocks are an important cause of business cycles.
C)  explains sticky price models.
D)  explains equilibrium business cycle models.
E)  does not take into account why such a contract would be written.

Question 4

Comovement between nominal and real variables

Accepted Answer

A)  was not historically a strong regularity in Canada, but now it is.
B)  cannot be explained.
C)  was observed by Friedman Schwartz in the historical Canadian data.
D)  was observed by Friedman and Schwartz after the 2008 2009 recession.
E)  was once a strong regularity in Canadian data, but is no longer.

Question 5

Procyclical total factor productivity (TFP) could be caused by

Accepted Answer

A)  the labour input to production is countercyclical.
B)  lower average labour productivity when real GDP is high.
C)  when TFP rises, real GDP falls.
D)  measurement error.
E)  lower investment when real GDP is high.

Question 6

In the New Keynesian model, an increase in current government spending shifts

Accepted Answer

A)  the output supply curve to the right.
B)  the production function up.
C)  the output demand curve to the left.
D)  the output supply curve to the left.
E)  the output demand curve to the right.

Question 7

The real business cycle model replicates the key business cycle regularities

Accepted Answer

A)  with equal magnitudes of change.
B)  qualitatively but not quantitatively.
C)  both qualitatively and quantitatively.
D)  neither qualitatively nor quantitatively.
E)  quantitatively but not qualitatively.

Question 8

In the New Keynesian sticky wage model, an increase in the money supply

Accepted Answer

A)  shifts the output supply curve to the left.
B)  shifts the output demand curve to the right.
C)  immediately closes the output gap.
D)  shifts the output demand curve to the left.
E)  shifts the output supply curve to the right.

Question 9

Measurement errors of changes in the Solow residual during recessions are most likely caused by

Accepted Answer

A)  underutilization of capital, but not of labour.
B)  constant real wage rate.
C)  mismeasurement of real GDP.
D)  underutilization of labour, but not of capital.
E)  underutilization of labour and capital.

Question 10

In the New Keynesian model, an increase in the money supply

Accepted Answer

A)  causes a reduction in the price level.
B)  causes an equiproportional increase in the price level.
C)  has no effect on the price level.
D)  causes a less than proportional increase in the price level.
E)  causes a more than proportional increase in the price level.

Question 11

The behaviour of the Solow residual suggests that when current total factor productivity increases

Accepted Answer

A)  such increases are temporary, so we can draw no conclusions about the likely behaviour of future total factor productivity.
B)  are typically temporary and have no influence on future levels of aggregate real GDP.
C)  it becomes more difficult to predict future total factor productivity.
D)  future total factor productivity is likely to decrease.
E)  future total factor productivity is also likely to increase.

Question 12

Most central banks, including the Bank of Canada

Accepted Answer

A)  target the real interest rate.
B)  target a particular monetary aggregate.
C)  target the money supply.
D)  target the price level.
E)  refrain from stabilization policy.

Question 13

A key criticism of New Keynesian models is

Accepted Answer

A)  monetary policy is irrelevant.
B)  they don't explain why prices are sticky.
C)  old Keynesian models are better.
D)  they do not fit the data as well as real business cycle models.
E)  they are never used in practice.

Question 14

In the New Keynesian model, the output demand curve represents combinations of

Accepted Answer

A)  the real interest rate and the level of output at which the goods market and the labour market are in equilibrium.
B)  the real interest rate and the price level at which the goods market is in equilibrium.
C)  the price level and the level of output at which the goods market is in equilibrium.
D)  the real interest rate and the level of output at which the goods market is in equilibrium.
E)  the price level and the level of output at which the goods market and the labour market are in equilibrium.

Question 15

Changes in the money supply in the New Keynesian model is NOT a likely explanation of the typical business cycle, because the model counterfactually predicts that

Accepted Answer

A)  consumption is procyclical and the price level is procyclical.
B)  the real money supply is procyclical and consumption is procyclical.
C)  the real wage is countercyclical and the real money supply is procyclical.
D)  consumption is procyclical and the real wage is countercyclical.
E)  the price level is procyclical and the real wage is countercyclical.

Question 16

In the real business model, a persistent increase in total factor productivity causes

Accepted Answer

A)  the output demand curve shifting less than the output supply curve.
B)  the money supply to shift right.
C)  the price level to rise.
D)  real wages to fall.
E)  real interest rates to rise.

Question 17

Two business cycle facts that are less easily explained by the real business cycle are that

Accepted Answer

A)  the nominal money supply is procyclical and leads the business cycle.
B)  the nominal money supply is procyclical and is a leading indicator.
C)  the nominal money supply is procyclical and is coincident with the business cycle.
D)  the nominal money supply is procyclical and lags the business cycle.
E)  money and prices are both acyclical.

Question 18

In the New Keynesian model, an increase in current government spending

Accepted Answer

A)  decreases output and increases the real wage rate.
B)  decreases output and decreases the real interest rate.
C)  decreases output and increases the real interest rate.
D)  increases output and decreases the real interest rate.
E)  increases output and leaves the real interest rate unchanged.

Question 19

A classical objection to Keynesian sticky price models is that

Accepted Answer

A)  nominal wages are always fixed.
B)  real shocks are more important than nominal shocks.
C)  it is easier for firms to change prices rather than change output.
D)  it is cheaper for firms to change output rather than change prices.
E)  sticky price models are internally inconsistent.

Question 20

In the New Keynesian model, the central bank's policy target is

Accepted Answer

A)  aggregate output.
B)  the interest rate.
C)  unemployment.
D)  the money supply.
E)  money demand.

Exam 13: Business Cycle Models With Flexible Prices and Wages

Two business cycle facts that are less easily explained by the real business cycle are that

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The main difference between the New Keynesian model and the basic monetary intertemporal model is that in the New Keynesian model

Correct AnswerverifiedShow Answer

The behaviour of the Solow residual suggests that when current total factor productivity increases

Correct AnswerverifiedShow Answer

Changes in the money supply in the New Keynesian model is NOT a likely explanation of the typical business cycle, because the model counterfactually predicts that

Correct AnswerverifiedShow Answer

In the real business model, a persistent increase in total factor productivity causes

Correct AnswerverifiedShow Answer

A key criticism of New Keynesian models is

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Measurement errors of changes in the Solow residual during recessions are most likely caused by

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In the New Keynesian model, an increase in the money supply

Correct AnswerverifiedShow Answer

Negative nominal interest rates work because

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In the New Keynesian model, an increase in current government spending

Correct AnswerverifiedShow Answer

The argument that the nominal wage is fixed because of long-term labour contracts

Correct AnswerverifiedShow Answer

Comovement between nominal and real variables

Correct AnswerverifiedShow Answer

A classical objection to Keynesian sticky price models is that

Correct AnswerverifiedShow Answer

Procyclical total factor productivity (TFP) could be caused by

Correct AnswerverifiedShow Answer

In the New Keynesian model, an increase in current government spending shifts

Correct AnswerverifiedShow Answer

In the New Keynesian model, the central bank's policy target is

Correct AnswerverifiedShow Answer

In the New Keynesian sticky wage model, an increase in the money supply

Correct AnswerverifiedShow Answer

Most central banks, including the Bank of Canada

Correct AnswerverifiedShow Answer

The real business cycle model replicates the key business cycle regularities

Correct AnswerverifiedShow Answer

In the New Keynesian model, the output demand curve represents combinations of

Correct AnswerverifiedShow Answer

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