Homework 6 - ECON 3040-001 Intermediate Macroeconomic...

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Principles of Macroeconomics
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Chapter 20 / Exercise 6
Principles of Macroeconomics
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ECON 3040-001 Intermediate Macroeconomic TheoryFall 2015Homework 6Due: October 28, 20151Review questions1. What main feature of the classicalIS-LMmodel distinguishes it from the KeynesianIS-LMmodel? Why is the distinction of practical importance?2. What are the two main components of any theory of the business cycle? Describe these twocomponents for the real business cycle theory.3. Definereal shockandnominal shock. Given an example of each. What type of real shock doreal business cycle economists consider the most important source of cyclical fluctuations?4. Definemonetary neutrality. Show that, after prices adjust completely, money is neutral in theIS-LMmodel. What are the classical and Keynesian views about whether money is neutralin the short run? In the long run?5. In what ways is the classical model’s conclusion about the neutrality or non-neutrality ofmoney modified by the model based on Lucas’s misperceptions theory?6. Defineefficiency wage
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Principles of Macroeconomics
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Chapter 20 / Exercise 6
Principles of Macroeconomics
Mankiw
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