Real Business Cycle Theory

Question 1

Given the per-period objective function of the household in the RBC model u(ct) + γv(1 − lt), what is the interpretation of gamma (γ)?
A) Utility individuals extract from consumption
B) Utility individuals extract from leisure
C) Relative value of consumption to leisure
D) Relative value of consumption today versus tomorrow

Answer 1

C) Relative value of consumption to leisure

Question 2

The Lucas Critique is a statement about the incorrect
A) measurement of economic data
B) application of econometric methods
C) interpretation of theoretical models
D) interpretation of econometric results

Answer 2

D) interpretation of econometric results

Question 3

In the RBC model, what can create longer amplitude of cycles (time from
peak to trough)?
A) increased mean of technology innovations
B) increased variance of technology innovations
C) Increased autocorrelations of the technology innovations
D) none of the above

Answer 3

C) Increased autocorrelations of the technology innovations