During a recession, the marginal product of capital _______because the amount of capital per hour of labour ___________.

increases; decreases
decreases; increases
increases; increases
decreases; decreases

The _______ theory predicts that a decrease in aggregate demand will lead to a larger decrease in real GDP than that predicted by the alternative theories because the short-run aggregate supply curve is ________________.

Keynesian; horizontal
monetarist; horizontal
real business cycle; vertical
monetarist; upward sloping

An economy is at full employment and potential GDP is $50 billion. When the central bank in this economy increases the money growth rate, the monetarist theory of the business cycle predicts that in the long run, real GDP will __________________________.

remain at $50 billion and the price level will be higher
remain at $50 billion and the price level will be unchanged
exceed $50 billion and the price level will be higher
exceed $50 billion and the price level will be unchanged

On the island of Beach, the economy is currently at point a in the figure. The new classical theory of the business cycle predicts that an anticipated increase in aggregate demand will move the economy to point _______ and an unanticipated increase in aggregate demand will move the economy to point _______.

b; c
a; c
b; d
c; b

The rational expectations theories predict that a ___________ than anticipated increase in aggregate ___________ brings an expansion and a ___________ than anticipated increase in aggregate demand brings a recession.

larger; demand; smaller
smaller; supply; smaller
larger; supply; larger
smaller; demand; larger

An economy is at potential GDP when the people in the economy expect that the government will increase taxes. The new Keynesian theory of the business cycle predicts that real GDP will _______, employment will _______, and the price level will _______.

decrease; decrease; fall
decrease; increase; fall
increase; decrease; remain constant
decrease; decrease; remain constant

Today, the real wage rate is $10 an hour and the real interest rate is 5 percent a year. People expect the real wage rate to be $10.05 an hour in one year. The $10 an hour earned now will be worth _______ a year from now. The intertemporal substitution effect tells us that people will want to work ________________.

$10.50 an hour; more now and less next year
$15.00 an hour; the same amount now and next year
$10.05 an hour; more both now and next year
$10.50 an hour; more next year and less now

Real business cycle theory predicts that an increase in the growth rate of productivity resulting from technological change will _______ aggregate demand, will _______ potential GDP, and will _________ the price level.

increase; increase; increase
increase; decrease; increase
increase; not change; increase
not change; increase; decrease

On the island of Beach, the economy is at point a in the figure. If the economy is hit by a technolgy shock that decreases investment, real business cycle theory predicts that the economy will ________________.

move to point c
move to point d
move to point b
remain at point a

In real business cycle theory, the unemployment rate _________ the natural rate in an expansion and _____________ the natural rate in a recession.

is equal to; is equal to
falls below; is equal to
is equal to; rises above
falls below; rises above

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