1. Short Answer What are business cycles and why are they relevant in economics?
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Question
1. Short Answer What are business cycles and why are they relevant in economics? What are General Equilibrium Models? Do we need them in eco- nomics? Explain. What is the cause of business cycles? Explain. What determines Total Factor Productivity? Can economic policy increase TFP? Why Total Factor Productivity fluctuates? What is the Taylor rule?* and why is conventio nal monetary policy ineffective when the interest rate is near the zero lower bound? What is the role of uncertainty during business cycles? What is asymmetric information? How does it affect the credit mar- ket? (You can use an example to explain the effects on the credit market) In what sense is the 2008 recession different to recessions before 2000? What does the Real Business Cycle model can say about the Finan- cial Crisis? What is Quantitative Easing? Why did the FED used this "uncon- ventional policy during the Financial Crisis?* What's the Ricardian Equivalence? Is it satisfy in the data? Explain. ble 'frictions' that can limit the predictions in What are some possi the models studied in class? How can they change our results? Hint: how would they change the constraints or marginal conditions of firms and consumers? What are some possible macroeconomic effects of the 'Trade War?* What are some possible macroeconomic effects of the Tax Cuts'?* What are some possible macroeconomic effects of the FED's 'Exit Strategy'?*Explanation / Answer
1.
Business cycles represent the different phases of economic activity comprise of expansion and recession. Graphically, it shows the upwards and downward movement of GDP over a period of time. The four phases are expansion, peak, contraction, and trough. The business cycle fluctuations occur around long-term growth trend in terms of real GDP.
2.
General equilibrium models or Walrasian general equilibrium theory explains the functioning of macroeconomics as a whole. It tries to show how all try markets tend to equilibrium in the long run. It shows how demand and supply in many markets interact dynamically and result in an equilibrium of prices.
3.
Business cycle shows the volatility in economic growth and the different factors that affect the economy such as interest rate, confidence, credit cycle and the multiplier effect. There are demand side and supply side factors; where the latter includes real business fluctuations of technological shocks, changes in the rate of productivity, demographics and inventory cycle.
4.
Total factor productivity explains that portion of the growth in output which is not explained by traditional factors of inputs like labor and capital used in production. It is a measure of economic efficiency. Total factor productivity or technological advancement which increases per capita efficiency is an important factor for long-run growth. It is not just an autonomous factor for inducing growth but also builds human capital which is an essential component of long-term economic growth.
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