« previous next »

Author Question: How might real business cycle theorists respond to evidence of procyclical inflation? What will ... (Read 44 times)

ashley

  • Hero Member
  • *****
  • Posts: 584
on: Jun 30, 2018
How might real business cycle theorists respond to evidence of procyclical inflation?
 
  What will be an ideal response?

Question 2

Consider the two graphs above. Suppose that financial liberalization enables more businesses to access credit markets. This would ________ the desired level of the capital stock, as depicted in graph ________.
 
  A) increase; B
  B) increase; A
  C) decrease; B
  D) decrease; A


prumorgan

  • Sr. Member
  • ****
  • Posts: 326
Reply #1 on: Jun 30, 2018
Answer to Question 1

Since the aggregate demand curve is negatively-sloped, changes in potential output should relate negatively to inflation. Rising potential (actual) output should put downward pressure on prices, while negative productivity shocks should force prices up. Defenders of real business cycle theory may point to evidence that inflation is not consistently procyclical. Also, if aggregate demand shifts are correlated with changes in potential output, that might account for procyclical changes in inflation.

Answer to Question 2

A


Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
« previous next »
 

Did you know?

Urine turns bright yellow if larger than normal amounts of certain substances are consumed; one of these substances is asparagus.

Did you know?

Disorders that may affect pharmacodynamics include genetic mutations, malnutrition, thyrotoxicosis, myasthenia gravis, Parkinson's disease, and certain forms of insulin-resistant diabetes mellitus.

Did you know?

Studies show that systolic blood pressure can be significantly lowered by taking statins. In fact, the higher the patient's baseline blood pressure, the greater the effect of statins on his or her blood pressure.

Did you know?

Your skin wrinkles if you stay in the bathtub a long time because the outermost layer of skin (which consists of dead keratin) swells when it absorbs water. It is tightly attached to the skin below it, so it compensates for the increased area by wrinkling. This happens to the hands and feet because they have the thickest layer of dead keratin cells.

Did you know?

Though the United States has largely rejected the metric system, it is used for currency, as in 100 pennies = 1 dollar. Previously, the British currency system was used, with measurements such as 12 pence to the shilling, and 20 shillings to the pound.

Menstrual Cycle Menstrual Cycle
RNA Virus Life Cycle RNA Virus Life Cycle
Evidence for big game hunting by archaic H. sapiens is suggested by the excavations at the Boxgrove Evidence for big game hunting by archaic H. sapiens is suggested by the excavations at the Boxgrove
The Weather Business: A Brief Overview The Weather Business: A Brief Overview
Hierarchy of scientific evidence Hierarchy of scientific evidence
The TaqMan approach to quantitative real-time PCR (qPCR) The TaqMan approach to quantitative real-time PCR (qPCR)
Video: Type of Cell Junctions - Desmosome, Hemidesmosomes and Gap Junctions

For a complete list of videos, visit our video library