prelims_Macro Prelim June 2008

prelims_Macro Prelim June 2008 - University of California,...

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University of California, Davis Date: June 30, 2008 Department of Economics Time: 5 hours Macroeconomics Reading Time: 20 minutes PRELIMINARY EXAMINATION FOR THE Ph.D. DEGREE Directions: Answer all questions. Short Answer Questions - Keep your answers short and concise. (Each question is worth 5 points.) 1. Consider two closed economies that have the same real interest rate. If consump- tion growth is higher and less volatile in Economy A relative to Economy B, what implications does this have for preferences in the two economies? 2. One of the stylized facts of growth is a growing wage rate and a (relatively) constant labor supply. What restrictions does this place on agents’ preferences? 3. In the Solow model, what happens when there is a permanent increase in the savings rate? Describe both the transition and steady-state effects. What economic forces are at work? 4. An equity is a claim to a stream of future dividends. Suppose that dividends grow at a constant rate g and are discounted at a constant rate r , with r > g . There is no uncertainty. The price of the equity is the present discounted value of this dividend stream. What is the price-dividend ratio? (Hint: I would do this in continuous time, but you don’t have to.) 5. Re question (4), what happens to the price-dividend ratio when there is a permanent increase in r ? How about when there is a permanent increase in g economic intuition for each. Longer Answer Questions (Each question is worth 25 points.)
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prelims_Macro Prelim June 2008 - University of California,...

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