A Government Policy That Is Consistent with Real Business Cycle

question 40

Multiple Choice

A government policy that is consistent with real business cycle theory would be for

• A)the monetary authority to expand and contract the nominal money supply in response to shocks to total factor productivity.
• B)government to smooth out tax distortions over time.
• C)government to vary its spending in response to shocks to total factor productivity.
• D)government to vary its spending and taxation decreases in response to shocks that affect the price level.
• E)government to vary its lump-sum tax collections in response to changes in total factor productivity.

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Definitions:

Transience

The tendency for memory and other cognitive processes to diminish over time, leading to forgetting or the loss of information.

Recognition

The process of identifying something previously seen, heard, or experienced through memory.

Recall

The mental process of retrieving information from the past, without being re-exposed to it in the present.

Engram

A hypothetical means by which memory traces are stored as biophysical or biochemical changes in the brain in response to external stimuli.