prelims_Macro Prelim Sept 2006

prelims_Macro Prelim Sept 2006 - University of California,...

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University of California, Davis Date: September 7, 2006 Department of Economics Time: 4 hours Macroeconomics Reading Time: 20 minutes PRELIMINARY EXAMINATION FOR THE Ph.D. DEGREE Directions: Answer all questions. Part 1 collectively counts for 25 percent of the grade. Each of the questions in Part 2 count for 25 percent of the grade. Part 1: Short Answer Questions - Keep your answers short and concise. 1. In Lucas’s consumption CAPM, returns on traded assets satisfy the following Euler equation, β E t μ C t +1 C t α R j,t +1 =1 , (1) where β is the subjective discount factor, α is the coe cient of relative risk aversion, C t is consumption, and R j,t +1 is the gross real return on security j . Brie f y discuss how the equity premium and risk-free rate puzzles follow from this equation. 2. In the Solow model, the golden rule allocation of capital satis F es f 0 ( k GR )= n + g + δ , where k K/AL, f ( k ) is the production function, n is the population growth rate, g is the rate of exogenous technical progress, and δ is the depreciation rate. How can we use data to determine whether the US economy has more or less capital than the golden rule allocation? What do the data tell us? 3. Within the context of a real business cycle model, assume that agents’s utility
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This note was uploaded on 02/09/2010 for the course ECON 200D taught by Professor Pontusrendahl during the Winter '06 term at UC Davis.

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prelims_Macro Prelim Sept 2006 - University of California,...

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