1) When the economy is regularly hit by TFP shocks we say the one-period model is useful because it realistically predicts that :
A) consumption is procyclical and employment is countercyclical
B) consumption is countercyclical and employment is procyclical
C) both consumption and employment are procyclical
D) both consumption and employment are countercyclical
2) Suppose that in the one-period model the government wants to maximize output and the time endowment is expressed in hours (that is, h = 24). Output is maximized when the government forces the consumer to use all her endowment time, that is, N = h = 24. The problem with this policy is that
A) the government would run a deficit
B) it is a negative TFP shock
C) it is not Pareto optimum
D) consumption would fall and that would reduce welfare.