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prelims_Macro Prelim Sept 2004

prelims_Macro Prelim Sept 2004 - University of California...

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University of California, Davis Date: September 9, 2004 Department of Economics Time: Four Hours Macroeconomics Reading Time: 20 minutes Preliminary Examination for the Ph. D. Degree Directions: Answer all questions. Note that, while you have four hours for the exam, the test is designed to be finished in 3 hours. 1. Answer the following. Your answer for each question should take no more than two pages: (a) Do you agree with the following quote: “In the standard real business cycle (RBC) framework, the persistence of the technology shock plays a critical role in both the amplification and propagation mechanisms evident in equilibrium behavior.” (b) Consider the following simple representative agent, cash-in-advance economy: At time t , households combine money acquired in the previous period with the current lump sum monetary transfer to purchase consumption in the goods market. Consumption goods are produced using labor via a concave production function: ( ) t t h f y = ; this output is then sold in the current period at the (nominal) price, t P . These nominal receipts plus any money unspent in the goods market determine the money balances brought into period t+ 1. The money supply is growing at the constant rate, µ so that the aggregate money stock evolves according to ( ) µ + = + 1 M M t 1 t (Hence the lump sum transfer in period t is equal to 1 t M µ ). Each period, agents choose ( ) t t t M h c , , in order to maximize lifetime utility given by ( ) ( ) [ ] = + 1 t t t 1 t h 1 W c U β Solve for the steady-state of this economy. Is money superneutral?
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