Question 11 (5 points) Using Canadian data to estimate housing (or residential) investment and house prices its appears that: Only residential investment is well explained Both are well explained by the variables suggested by theory Only house prices are well explained Each seem to rely on different variables than suggested by theory Question 12 (5 points) The theory of menu costs provides an explanation of: Why we observe very wide swings in prices and wages The existence of nominal rigidities in the economy The existence of real rigidity in the economy Bad economic reasoning since such costs are too small to matter Question 13 (5 points) The market price of stocks appears to be much more volatile than efficient market hypothesis would suggest. This could be due to Fluctuations in the real rate of interest Fluctuations in the required risk premium Fluctuations in the growth of expected future dividends All of the above Question 14 (5 points) When studying the dynamics of the housing market (that is, taking account of demand and supply as well as the evolution the stock of housing) it appears that the housing market: Is unstable in the sense that following a transitory shock it will not return to equilibrium That only the stock of housing is stable in the sense that following a transitory shock it will return to equilibrium but not house prices Is stable in the sense that following a transitory shock it will return to equilibrium That only the price of housing is stable in the sense that following a transitory shock it will return to equilibrium but not house investment Question 15 (5 points) Based on the complete model of housing, the real price of housing over the long run: Should not show any trend, since the long-run determinants do not show a trend Should exhibit a continuous rise as incomes rise and land is less available Should exhibit a decline as housing investment as faction of GDP continues to add to the stock of housing Should exhibit an upward trend as real interest decline