Question from Past Macroeconomics Qualifying Exam (Fall, 2005 - Question two) at George Mason University[]

What would the aggregative properties of a “well-working” market economy look like as the economy moved through time? Would a plot of the time series of aggregate variables be smooth (as illustrated by trend stationarity) or jagged (as illustrated by a random walk with drift)? Would a downturn in some aggregate variable indicate some type of coordination failure, or is it a normal feature of a well-working economy? Describe with simple models how different macro schools have approached this matter of the performance properties of a well-working market economy. Comment on the resulting implications for the common disjunction between growth and cycles in macro theorizing.


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