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ECON 102: Practice 3 - Test 3Macroeconomic TheoryPlease be BRIEF in answering the following questions.Use only the provided blue books.Work alone and do not use any type of “external help”, other than a standard calculator. Youhave 80 minutes to work on your test. Good luck!1. (5 points) Recently Argentina nationalized the main oil firm in the country, YPF-Repsol,after having been privatized 20 years ago.Why do you think this decision was highlycriticized? Use the idea of Time Consistency.2. (5 points) Compare the volatility of consumption, investment, and output in the U.S. econ-omy. Why is this comparison important when constructing macroeconomic models?3. (5 points) Shocks to TFP are usually modeled as an AR(1) process. Explain how this processlooks like and what its parameters represent.An AR(1) process has the following form.zt=ρzt-1+σtwheret∼ N(0,1)The parameterρrepresents the coefficient of first order autocorrelation (this is, the correla-tion between TFP in one period and TFP in the previous period). The closer this numberis to 1, the more persistent is TFP. The coefficientσindexes how important are the randomshocks in the evolution of TFP. Since these random shocks,t, are assumed to be distributedfollowing a standard normal distribution,σis also the variance of these random shocks.