In the Real Business Cycle Model, a Persistent Increase in Total

question 27

Multiple Choice

In the real business cycle model, a persistent increase in total factor productivity

• A)has no effect on the real interest rate.
• B)has a theoretically ambiguous effect on the nominal interest rate.
• C)unambiguously increases the real interest rate.
• D)unambiguously decreases the real interest rate.
• E)has a theoretically ambiguous effect on the real interest rate.

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Definitions:

Equilibrium

A state of balance in a system where supply equals demand, and there is no external force prompting change.

Consumer Surplus

The difference between the total amount consumers are willing to pay for a good or service and the total amount they actually pay.

Producer Surplus

The difference between what producers are willing and able to sell a good for and the actual price they receive, representing the benefit to sellers.

Opportunity Cost

The expense incurred by not choosing the second-best option in any decision-making process.