1. Which of the following is n_ot a well documented business cycle fact? a) Investment is volatile and uctuates much more than output. b) Fluctuations in output and aggregate hours of work are roughly equal in magnitude. c) Government spending is pro-cyclical and tends to lead output. d) Capital stock is largely uncorrelated with output and uctuates much less than output. 2. In the real business cycle (RBC) theory, a positive technology shock a) increases the productivity of labour but decreases employment. b) decreases the real wage but increases employment. c) increases both the real wage and employment. (1) decreases the equilibrium employment but increases the real wage. 3. Suppose that there is a negative productivity shock and a simultaneous scal policy response that provides more incentives for households to work longer hours. If you analyse the effects of these changes using the RBC theory, you would conclude that a) both real wage and employment will decrease. b) real wage will fall but employment may not decrease. c) employment will decrease but real wage may not fall. (1) both real wage and employment will increase. 4. Suppose that your utility derived om consumption (0) is given by the following function: 1 c 71 1 - Y Then, which of the following statements about the absolute risk aversion (ARA) and relative risk aversion (RRA) is correct? U: a) ARA is constant with wealth and RA = l. b) ARA is absolutely constant but RA is all relative to wealth (consumption). c) ARA is decreasing in wealth (consumption) but RA is constant. d) ARA is increasing in wealth (consumption) but RA is constant