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prelims_Macro Prelim Sept 2008

prelims_Macro Prelim Sept 2008 - University of California...

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University of California, Davis Date: September 4, 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. In the Lucas tree model of asset prices, demonstrate that the price of equity is a monotonically increasing function of dividends if the dividend process is i:i:d: Does this necessarily hold when the dividend process exhibits positive autocorrelation? (Recall that in the Lucas model, the level of the dividend is stationary.) 2. Habit persistence in consumption has been shown to help resolve the equity premium puzzle. How does this modi°cation of preferences improve the perfor- mance of the consumption-based capital asset pricing model. 3. For the Solow model with capital accumulation, population growth, and ex- ogenous technical progress, derive the Golden Rule . Be explicit about the objective function, the optimal allocation of capital, and how that allocation is supported as an equilibrium. To keep things simple, assume that the govern- ment can determine the economy±s saving rate.
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