Question 1

When taxes are included in the labor market in the stylized DSGE model, real wages increase.

Accepted Answer

A) True 
 B)False

Question 2

In the impulse response function presented in the text, the effects of contractionary monetary policy on real GDP dissipate:

Accepted Answer

A)   almost immediately
B)   after about 20 quarters
C)   after less than a year
D)   after about 3 to 4 quarters
E)   There is no effect on real GDP.F) C) and D)
G) A) and C)

Question 3

In the DSGE framework, prospects for a "fiscal cliff" in the fall of 2012 increases ________ about the future leading firms to ________, which would ________.

Accepted Answer

A)   uncertainty; delay investment; slow economic activity
B)   federal surpluses; hire more workers; decrease unemployment
C)   state spending; reduce pensions; reduce the labor supply
D)   tax rates; increase investment; improve TFP
E)   interest rates; reduce investment; lead to better long-term growthF) A) and C)
G) B) and C)

Question 4

A new colleague of yours decided to try her hand at DSGE models and found some computer code that allows her to run a version of the Smets-Wouters DSGE model. She decides to try a contractionary monetary shock. When she does, she gets the following impulse response function for real GDP (left scale),  consumption (left), and inflation (right). When she shows you her results you are immediately skeptical based on what you know about economic theory and impulse response functions. Explain your skepticism.
Figure 15.5  
Impulse response functions

Accepted Answer

First, you note that with contractionary...

Question 5

Impulse response functions can be thought of as:

Accepted Answer

A)   an alternative way of looking at AS/AD
B)   a substitute to the Solow model
C)   accurately reflecting an economy's dynamics
D)   an application of empirical estimates to understanding an economy
E)   demonstrating how economies worldwide react to shocksF) A) and D)
G) A) and B)

Question 6

In the simplified DSGE model in the text, we treat:

Accepted Answer

A)   consumption as exogenous
B)   the wage as exogenous
C)   consumption as endogenous
D)   the depreciation rate as given
E)   total factor productivity as predictableF) B) and E)
G) A) and B)

Question 7

With sticky nominal wages a monetary expansion causes:

Accepted Answer

A)   real wages to rise
B)   the price level to rise
C)   nominal wages to fall
D)   real interest rates to rise
E)   None of these answers are correct.F) D) and E)
G) B) and D)

Question 8

With sticky prices, in the stylized DSGE model, a monetary contraction ________, which ________.

Accepted Answer

A)   raises inflationary expectations; pushes the Phillips curve up
B)   lowers inflationary expectations; expands labor supply
C)   decreases aggregate demand; decreases labor demand
D)   raises taxes; reduces labor demand
E)   represents a fiscal expansion; pushes up labor demamdF) C) and E)
G) None of the above

Question 9

When taxes are included in the stylized DSGE model, with Cobb-Douglas production, labor demand is given by $w = ( 1 - \tau ) \cdot M P L$ 
.

Accepted Answer

A) True 
 B)False

Question 10

Refer to the following figure when answering     
Figure 15.1: The Labor Market 
-Consider Figure 15.1, which is a representation of the labor market. In 2005, Hurricane Katrina hit the Gulf Coast of the United States; this would cause a shift from curve ________ because this is an example of a(n)  ________.

Accepted Answer

A)    a→ba \rightarrow ba→b ; negative TFP shock
B)    b→ab \rightarrow ab→a ; increase in TFP
C)    d→cd \rightarrow cd→c ; increase in the interest rate
D)    c→dc \rightarrow dc→d ; rise in government expenditure
E)   None of these answers are correct. F) A) and E)
G) All of the above

Question 11

In the Smets-Wouters DSGE model, the financial friction is introduced by a(n) :

Accepted Answer

A)   "wedge" between consumer interest rates and the federal funds rate
B)   discount rate greater than one
C)   large risk premium
D)   monetary policy parameter (  mˉ\bar { m }mˉ  )  equal to zero
E)   breakdown in the Taylor rule F) A) and B)
G) A) and C)

Question 12

You are a recent hire at the Labor Department and are asked to assess monetary policy's effects on labor markets using a stylized DSGE model with sticky prices. You read the Fed's policy statement, and given the negative output gap they decide to ________, which would ________ and ________.

Accepted Answer

A)   reduce taxes; reduce labor demand; push real wages down
B)   increase the FFR; reduce consumption; shift labor supply out
C)   use a fiscal expansion; lower taxes today; increase taxes in the future
D)   change inflationary expectations; raise the target inflation rate; raise real wages
E)   reduce the FFR; increase labor demand; push real wages upF) None of the above
G) A) and E)

Question 13

In the business cycle literature a better court system could be considered a negative TFP shock.

Accepted Answer

A) True 
 B)False

Question 14

In the Smets-Wouters DSGE model presented in the text, contractionary monetary policy has the largest impact on hours worked.

Accepted Answer

A) True 
 B)False

Question 15

The early DSGE models assumed that TFP fluctuates over time rather than growing at a constant rate.

Accepted Answer

A) True 
 B)False

Question 16

A temporary increase in government spending ________, and a permanent increase in government spending ________.

Accepted Answer

A)   shifts the labor supply up; shifts the labor supply up
B)   shifts the labor supply up; has no impact on labor supply
C)   shifts the labor demand up; shifts the labor supply down
D)   has no impact on labor demand; shifts the labor supply down
E)   shifts the labor supply up; shifts the labor demand downF) A) and E)
G) C) and D)

Question 17

In the stylized DSGE model, the motivation for a rise in government expenditure ________ today is ________.

Accepted Answer

A)   reducing consumption; permanent income hypothesis
B)   raising wages; a rise in TFP
C)   increasing labor demand; the Solow growth model
D)   forcing workers to work; capacity utilization
E)   increasing leisure; diminishing returns to consumptionF) None of the above
G) A) and B)

Question 18

In the stylized DSGE model, the variable that allows future events to affect the economy today is inflation expectation.

Accepted Answer

A) True 
 B)False

Question 19

Sticky nominal wages can lead to:

Accepted Answer

A)   involuntary unemployment
B)    LS<LDL ^ { S } < L ^ { D }LS<LD 
C)   a labor surplus
D)   falling real wages
E)   higher levels of TFP F) B) and D)
G) A) and B)

Question 20

The early DSGE models assumed that TFP:

Accepted Answer

A)   fluctuates over time rather than growing at a constant rate
B)   is constant but labor supply changes
C)   is highly correlated with real interest rates
D)   equals the marginal product of capital
E)   is always positiveF) C) and E)
G) A) and E)

Exam 15: Dsge Models: the Frontier of Business Cycle Research

You are a recent hire at the Labor Department and are asked to assess monetary policy's effects on labor markets using a stylized DSGE model with sticky prices. You read the Fed's policy statement, and given the negative output gap they decide to , which would and .

Correct Answer
verified

In the stylized DSGE model, the motivation for a rise in government expenditure today is .

Correct Answer
verified

When taxes are included in the stylized DSGE model, with Cobb-Douglas production, labor demand is given by $w = ( 1 - \tau ) \cdot M P L$ .

Correct Answer
verified

The early DSGE models assumed that TFP fluctuates over time rather than growing at a constant rate.

Correct Answer
verified

Impulse response functions can be thought of as:

Correct Answer
verified

In the DSGE framework, prospects for a "fiscal cliff" in the fall of 2012 increases about the future leading firms to , which would .

Correct Answer
verified

With sticky nominal wages a monetary expansion causes:

Correct Answer
verified

Correct Answer
verified

In the simplified DSGE model in the text, we treat:

Correct Answer
verified

In the impulse response function presented in the text, the effects of contractionary monetary policy on real GDP dissipate:

Correct Answer
verified

Sticky nominal wages can lead to:

Correct Answer
verified

In the business cycle literature a better court system could be considered a negative TFP shock.

Correct Answer
verified

In the stylized DSGE model, the variable that allows future events to affect the economy today is inflation expectation.

Correct Answer
verified

Correct Answer
verified
First, you note that with contractionary...
View Answer

With sticky prices, in the stylized DSGE model, a monetary contraction , which .

Correct Answer
verified

In the Smets-Wouters DSGE model, the financial friction is introduced by a(n) :

Correct Answer
verified

The early DSGE models assumed that TFP:

Correct Answer
verified

When taxes are included in the labor market in the stylized DSGE model, real wages increase.

Correct Answer
verified

A temporary increase in government spending , and a permanent increase in government spending .

Correct Answer
verified

In the Smets-Wouters DSGE model presented in the text, contractionary monetary policy has the largest impact on hours worked.

Correct Answer
verified

Exam 15: Dsge Models: the Frontier of Business Cycle Research

You are a recent hire at the Labor Department and are asked to assess monetary policy's effects on labor markets using a stylized DSGE model with sticky prices. You read the Fed's policy statement, and given the negative output gap they decide to ________, which would ________ and ________.

Correct AnswerverifiedShow Answer

In the stylized DSGE model, the motivation for a rise in government expenditure ________ today is ________.

Correct AnswerverifiedShow Answer

When taxes are included in the stylized DSGE model, with Cobb-Douglas production, labor demand is given by w=(1−τ)⋅MPLw = ( 1 - \tau ) \cdot M P Lw=(1−τ)⋅MPL .

Correct AnswerverifiedShow Answer

The early DSGE models assumed that TFP fluctuates over time rather than growing at a constant rate.

Correct AnswerverifiedShow Answer

Impulse response functions can be thought of as:

Correct AnswerverifiedShow Answer

In the DSGE framework, prospects for a "fiscal cliff" in the fall of 2012 increases ________ about the future leading firms to ________, which would ________.

Correct AnswerverifiedShow Answer

With sticky nominal wages a monetary expansion causes:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In the simplified DSGE model in the text, we treat:

Correct AnswerverifiedShow Answer

In the impulse response function presented in the text, the effects of contractionary monetary policy on real GDP dissipate:

Correct AnswerverifiedShow Answer

Sticky nominal wages can lead to:

Correct AnswerverifiedShow Answer

In the business cycle literature a better court system could be considered a negative TFP shock.

Correct AnswerverifiedShow Answer

In the stylized DSGE model, the variable that allows future events to affect the economy today is inflation expectation.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedFirst, you note that with contractionary...View AnswerShow Answer

With sticky prices, in the stylized DSGE model, a monetary contraction ________, which ________.

Correct AnswerverifiedShow Answer

In the Smets-Wouters DSGE model, the financial friction is introduced by a(n) :

Correct AnswerverifiedShow Answer

The early DSGE models assumed that TFP:

Correct AnswerverifiedShow Answer

When taxes are included in the labor market in the stylized DSGE model, real wages increase.

Correct AnswerverifiedShow Answer

A temporary increase in government spending ________, and a permanent increase in government spending ________.

Correct AnswerverifiedShow Answer

In the Smets-Wouters DSGE model presented in the text, contractionary monetary policy has the largest impact on hours worked.

Correct AnswerverifiedShow Answer

You are a recent hire at the Labor Department and are asked to assess monetary policy's effects on labor markets using a stylized DSGE model with sticky prices. You read the Fed's policy statement, and given the negative output gap they decide to , which would and .

Correct Answer
verified

In the stylized DSGE model, the motivation for a rise in government expenditure today is .

Correct Answer
verified

When taxes are included in the stylized DSGE model, with Cobb-Douglas production, labor demand is given by $w = ( 1 - \tau ) \cdot M P L$ .

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

In the DSGE framework, prospects for a "fiscal cliff" in the fall of 2012 increases about the future leading firms to , which would .

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
First, you note that with contractionary...
View Answer

With sticky prices, in the stylized DSGE model, a monetary contraction , which .

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

A temporary increase in government spending , and a permanent increase in government spending .

Correct Answer
verified

Correct Answer
verified