A Government Policy That Is Consistent with Real Business Cycle

question 9

Multiple Choice

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

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

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Definitions:

Fit

The degree to which a model or function closely approximates the data points it aims to represent.

Data

Information collected through observation, experiments, or any other method, used for analysis or to make decisions.

Q-Q Plot

A graphical tool to compare two probability distributions by plotting their quantiles against each other.

Normality

The condition in which a dataset or distribution follows a normal distribution, characterized by a bell-shaped curve.