run effects and long-run effects. What might constitute a negative technology shock? 7. Is the following statement true or false? Justify your answer. "The RBC model views agents as rational and optimizing, hence it views business cycles as equilibrium rather than disequilibrium phenomena".
2 8. Assess the following statements S1 and S2. Are they both true, both false or is only one true? Justify your answer. S1. A monetary policy maker will achieve stabilization at least cost by committing to a price-level target. S2. When a monetary policy maker has discretion to choose the interest rate in each period, they will follow the same adjustment path as under commitment because this minimizes the cost of adjustment to shocks. 9. Consider ABC economy with production function: 𝑦𝑦 𝑡𝑡 = 𝑎𝑎 𝑡𝑡 𝐿𝐿 𝑡𝑡 ; where 𝑎𝑎 𝑡𝑡 is the marginal productivity of labor and reflects the technology level of the economy and 𝐿𝐿 𝑡𝑡 is the total supply of labor or working hours. Now, 𝐿𝐿 � is the available working hours to a representative worker. In each period the representative worker tries to maximize utility from leisure ( 𝐿𝐿 � − 𝐿𝐿 𝑡𝑡 ) and consumption ( 𝐶𝐶 𝑡𝑡 ), given by: 𝑈𝑈 ( 𝐶𝐶 𝑡𝑡 , 𝐿𝐿 � − 𝐿𝐿 𝑡𝑡 ) = 𝐶𝐶 𝑡𝑡 𝛾𝛾 ( 𝐿𝐿 � − 𝐿𝐿 𝑡𝑡 )
- Summer '18
- Sagar Arora