Author Question: Suppose real output falls in the aggregate economy. Which is correct? A) A real business cycle ... (Read 38 times)

cool · **on:** Jun 30, 2018

Suppose real output falls in the aggregate economy. Which is correct?

A) A real business cycle theorist thinks that there was a negative shock to total factor productivity, and that the government should therefore increase expenditures.
B) A New Keynesian thinks that the output gap has fallen, and central bank's interest rate target should rise.
C) A real business cycle theorist thinks that total factor productivity has risen, and that the government should do nothing .
D) none of the above.

Question 2

In real business cycle models, shifts of the aggregate demand curve ________.

A) cause changes in inflation, but have no effect on output
B) cannot occur
C) result from changes in the willingness to work
D) result from Solow residuals