Question

1. (15 points) True, False, or Uncertain: Your answer will be based entirely on your justifica-

tion. A simple answer that says “True”, “False”, or “Uncertain” without any justification

will receive no credit. A sentence or two will suffice.

(a) (3 points) If a rational agent issues a non-credible threat, they will have no incentive to make good on it.

(b) (3 points) The RBC says a recession is still an efficient allocation.

(c) (3 points) The RBC produces co-movements that are totally consistent with the real

world data for Total Factor Productivity (At) and determinants of labor supply (Ht).

(d) (3 points) According to Milton Friedman, the marginal cost of printing money is the

real interest rate, so welfare is maximized when the nominal interest rate equals the

negative of the inflation rate.

(e) (3 points) If an economic model exhibits monetary superneutrality, increasing the

money stock will have no effects on real steady state values.