Lecture05 - Announcements Readings this week House, ch 2-5...

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Announcements Readings this week •House, ch 2-5 •Mankiw, ch 17 •Shapiro and Slemrod, “Did the 2008 Tax Rebates Stimulate Spending?” •NBER press release on recession Problem sets •PS #3 due next Tuesday in lecture End of recession declared • National Bureau of Economic Research • Business cycle dating committee • Looks at multiple indicators – GDP/GDI – Income – Employment • Trough in June 2009 • Longest recession since Great Depression – Peak to trough: 18 months Robert Hall, Chair, NBER Business Cycle Dating Committee, contemplating the data
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End of recession declared • June 2009 trough • Recession technically over • But recovery far from complete – Output/employment below trend – Unemployment high – Unemployment not falling
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Back to consumption model • Multiperiod budget constraint • Permanent income model • Loanable funds model
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Agents smooth consumption because they prefer equal MU. c 2 c 1 t t y t c t Æ More than two periods: Consumer lives until period T and 1 + r is constant. The period 0 constraint is: In period t Until period T : 00 0 cs y += ( ) 1 1 tt t t css r y ++ ( ) 1 1 TT T cs ry =+ + The Intertemporal Budget Constraint
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The Intertemporal Budget Constraint 12 0 2 (1 ) ) ) T T cc c c rr r ++ + + + " 0 2 ) ) ) T T yy y y r =+ + + " The Intertemporal Budget Constraint Infinite horizon, T = 00 22 ) ) ) ) cy + = + "" 0 2 ) ) ) T T c c r + + + " 0 2 ) ) ) T T y y r + + " The Intertemporal Budget Constraint Infinite horizon, T = () 11 tt ∞∞ == = ∑∑ 0 2 ) ) ) T T c c r + + + " 0 2 ) ) ) T T y y r + + "
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Infinite Horizon ( T = ) ( ) ( ) ( ) 2 01 2 .... uc ββ ++ + Consumer wants to maximize the discounted flow of utility: 0 < β < 1 is the consumers subjective discount factor.
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This note was uploaded on 12/31/2011 for the course ECON 402 taught by Professor House during the Fall '08 term at University of Michigan.

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Lecture05 - Announcements Readings this week House, ch 2-5...

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