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Unformatted text preview: May 26, 2009 at 14:33 Ph.D. Preliminary Examination MACROECONOMIC THEORY Spring 2009 Majors and Minors : Answer ALL FOUR parts. PLEASE MAKE YOUR ANSWERS NEAT AND CONCISE Make whatever assumptions you need to answer the questions. BE SURE TO STATE THEM CLEARLY. Macroeconomic Theory Spring 2009 Part I In the following there are 9 questions for 60 points. Answer questions for a total value of 50 points. Be as BRIEF as you can and good luck. Industry and Search Imagine a firm got a worker and it can produce one unit of output per period for 10 periods (there is a zero interest rate). If the firm does not operate today, it loses its license and is out. The worker is risk neutral, can either take the job or run a hot dog operation what yields .25 units per period for five years and sick for another 5 years during which she will be on disability insurance collecting .1 units of output. (1) (5 points) What is the minimum wage that the worker would accept. (2) (5 points) If the firm had to pay an entrance fee to open, what would be the maximum fee under which the firm would enter. (3) (5 points) Pose a wage that is the bargaining solution with the firm having twice the weight than the worker. (4) (5 points) Brieﬂy describe what could happen if there was a possibility of multiple entry of firms. How could the free entry condition be applied? Recursive Competitive Equilibrium There is an economy with many identical agents with preferences given by E ( ∞ X t =0 β t c 1 − σ t 1 − σ + α (1 − n t ) 1 2 + γ P 1 2 t ) where c t is their own consumption at time t , n t is the fraction of their own time worked at time t , and P t are public parks. Their initial wealth is A . 2 Macroeconomic Theory Spring 2009 The technology to produce output uses capital (that depreciates at rate δ ) and labor: Y t = F ( K t , N t ) (5) (5 points) What conditions would be satisfied in a Pareto Optimum in steady state? Imagine now that the government levies income taxes and issues debt to pay for the parks. Its initial debt is B ....
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 Spring '08
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 Economics

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