JHU_Fall2019_MidtermExam(1).pdf - Department of Applied...

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Macroeconomic Theory and Policy Midterm Exam | © Sanjay K. Chugh 0 Department of Applied Economics Johns Hopkins University Economics 602 Macroeconomic Theory and Policy Midterm Exam Professor Sanjay Chugh Fall 2019 Deadline: Tuesday, October 15, 2019 at 12:00noon (i.e., midday) ET ( Note: all submissions must be submitted via Blackboard in PDF) NAME (typed or hand-written): The Exam has a total of four (4) problems and pages numbered (following this cover page) one (1) through twenty (20 ). Each problem’s total number of points is shown below. Your solutions should consist of some appropriate combination of mathematical analysis, graphical analysis, logical analysis, and economic intuition, but in no case should solutions be exceptionally long. Your solutions should get straight to the point solutions with irrelevant discussions and derivations will be penalized. You are to answer all questions in the spaces provided. You may use your class notes, text, and lecture slides as needed; but you are on your honor to neither use any other materials whatsoever (i.e., other books, Internet searches, finding solutions online, etc.) nor collaborate with anyone (inside the class or outside the class) in completing the exam. If anything other than class notes, text, lecture slides, and other materials within our class is used, the score for the exam will be a ZERO, and further JHU academic discipline could be imposed (as per JHU’s Ethics and Plagiarism Policies) . SIGNATURE (honoring JHU Academic Integrity Polices) Problem 1 / 45 Problem 2 / 25 Problem 3 / 15 Problem 4 / 15 TOTAL / 100
Macroeconomic Theory and Policy Midterm Exam | © Sanjay K. Chugh 1 Problem 1: Two-Period Consumption-Savings Framework (45 points). Consider the two-period economy (with zero government spending and zero taxation), in which the representative consumer has no control over real income ( y 1 > 0 in period 1 and y 2 > 0 in period 2). The lifetime utility function of the representative consumer is ( ) 1 1 1 2 2 , (1 ) u c c c c + = , in which the exogenous parameter 0 and the exogenous parameter ( ,1]  − The consumer begins period 1 with zero net wealth (i.e., 0 0 a = ) . Keeping in mind that end-of-period-2 net wealth must be zero (i.e., 2 0 a = ) in the two-period economy, the lifetime budget constraint, stated in real units, is 1 1 1 1 r y c y c r + + + + = , in which r denotes the real interest rate. . 2 2 a. (7 points) Construct the lifetime Lagrange function for the representative consumer’s lifetime utility maximization problem. Clearly define any new notation.
Macroeconomic Theory and Policy Midterm Exam | © Sanjay K. Chugh 2

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