Advmacro hw (5)

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Economics

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Jan 9, 2024

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Uploaded by MagistrateFlowerArmadillo11

Advanced Macroeconomic Theory Homework - Set 7 Instructions: Please choose the correct option (A, B, C, or D) for each question. The "Lucas Critique" argues that: A. Historical relationships are always reliable for predicting future economic outcomes. B. Economic models should be based solely on historical data. C. The relationship between policy instruments and economic outcomes may change when policy regimes change. D. Economic agents always act in their own self-interest. According to the "theory of optimal currency areas," what conditions make a group of countries suitable for sharing a common currency? A. High levels of economic diversity B. Flexible exchange rates C. Similar business cycles and economic structures D. Strict capital controls The concept of "complete markets" in macroeconomics suggests that: A. Financial markets are fully regulated by the government. B. Markets where all possible future contingencies can be traded exist. C. Markets are inefficient and cannot achieve equilibrium. D. Markets are always characterized by information asymmetry. The "Modigliani-Miller theorem" in financial economics states that, under certain conditions:

A. Government intervention is necessary for market stability. B. The cost of capital is irrelevant in determining a firm's value. C. Investors are always rational in their decision-making. D. Corporate taxes do not impact firm value. The concept of "optimal monetary policy" in New Keynesian economics suggests that central banks should: A. Only focus on controlling inflation. B. Only focus on stabilizing output and employment. C. Consider both inflation and output stabilization when setting policy. D. Delegate policy decisions to an independent monetary authority. According to the "expectations-augmented Phillips Curve," what is the long-run impact of expansionary monetary policy on inflation and unemployment? A. Inflation decreases, and unemployment increases. B. Inflation increases, and unemployment decreases. C. Inflation and unemployment remain unchanged. D. Inflation and unemployment both decrease. The concept of "currency substitution" refers to: A. The use of multiple currencies in an economy. B. The replacement of physical currency with digital forms of money. C. The central bank's control over the money supply. D. The dominance of a single global reserve currency. The "Dynamic Stochastic General Equilibrium (DSGE) model" is often used to analyze:

A. Short-run fluctuations in output and employment. B. Long-term economic growth. C. The impact of fiscal policy on inflation. D. The role of expectations in decision-making. The concept of "time inconsistency" in macroeconomics refers to: A. The impact of inflation on interest rates. B. The difficulty of making optimal decisions over time. C. The unpredictability of economic fluctuations. D. The optimal use of time in economic modeling. The "Ricardian equivalence theorem" suggests that: A. Consumers are indifferent to changes in government spending. B. Changes in government spending have no impact on aggregate demand. C. Tax cuts are more effective than increases in government spending. D. Consumers adjust their behavior based on expectations of future taxes.

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