Lecture 2: The Neoclassical Growth Model
|
|
- Willa Wilcox
- 5 years ago
- Views:
Transcription
1 Lecture 2: The Neoclassical Growth Model Florian Scheuer 1 Plan Introduce production technology, storage multiple goods 2 The Neoclassical Model Three goods: Final output Capital Labor One household, with preferences β t u (c t ) (Later we will introduce preferences with respect to labour/leisure) Endowment Initial stock of capital k 0 One unit of labor in each period Technology Capital and labor can be combined to produce final output according to production function Y = f (K, L) 1
2 Final output good can be consumed or invested. Investing converts output into capital one-for-one: Y t = I t + C t (we may or may not impose I t 0, depending on whether we want to allow capital to be converted back into final output; typically it doesn t matter whether we do) Capital depreciates at rate δ, so K t+1 = (1 δ) K t + I t 3 Competitive Equilibrium Markets: For output at time t. Price p t. Output at time zero is numeraire (p 0 0) For labor at time t. Price is w t p t. This means that the price of labour in terms of time-t output is w t. For capital services at time t. Price is r t p t. This means that the price of capital services in terms of time-t output is r t Equivalently (sequential formulation): at each time t there is a market for Output next period at price q t+1 (or interest rate R t+1 = 1 q t+1 ) Labor at price w t Capital services at price r t What does it mean to hire capital services? I own one unit of capital (a machine) I let you use it for one period You return it to me (depreciated) at the end of the period Production is carried out by a representative firm. The representative firm is owned by the household The firm takes prices w t, r t, p t as given and has access to the productive technology, but it doesn t own anything. 2
3 It rents capital and hires labor and combines them to produce output seeking to maximize profits, which it then pays out to the household that owns it. (Under constant returns to scale, which we assume just below, profits are zero in equilibrium) The household gets income from selling its labor, from renting the capital that it owns and from the firm s profits. It chooses how much to consume each period and how much capital to build. Firm s problem: Household problem: π = max p t [y t w t l t r t k t ] {y t,k t,l t } y t = f (k t, l t ) max β t u (c t ) {c t,i t,k t+1 } k t+1 = (1 δ) k t + i t p t (c t + i t ) p t [w t + r t k t ] + π k 0 given (1) (2) Definition 1. A competitive equilibrium is given by an allocation {Y t, C t, K t, L t } and prices {p t, w t, r t } such that: 1. Y t, K t, L t solve the firm s problem (1), taking prices as given 2. C t, I t, K t solve the household s problem (2), taking prices as given 3. Markets clear: (a) Y t = C t + I t (b) L t = 1 4 Characterizing the Equilibrium 4.1 Firm s problem Static problem: maximize profits period by period 3
4 Simplifies to: max k,l f (k, l) r K k wl FOC: f K (k, l) r = 0 (3) f L (k, l) w = 0 (4) Assumption 1. F( ) is homogeneous degree 1 and differentiable Definition 2. f (K, L) is h.d.1 if f (λk, λl) = λ f (K, L) for any λ > 0 h.d.1 is just another way of saying constant returns to scale Proposition 1. (Euler s Theorem) If f (K, L) is h.d.1 and differentiable, then f K (K, L) k + f L (K, L) L = f (K, L) Proof. We know that f (λk, λl) = λ f (K, L) Differentiate both sides w.r.t. λ: f K (λk, λl) K + f L (λk, λl) L = f (K, L) Evaluating at λ = 1 gives the result. Proposition 2. In equilibrium, firms make zero profits Proof. Profits are given by: π = = = 0 p t [ f (k t, l t ) r t k t w t l t ] p t [ f (k t, l t ) f K (k t, l t ) k t f L (k t, l t ) l t ] where the first step follows from the firm s FOC and the second from Proposition 1. Some hidden assumptions in the proof. We have used the first order conditions (3) and (4), but these are only valid if the firm s problem has an interior solution. 4
5 The logic of the proof is that the market clearing condition requires that the firm s problem have an interior solution; otherwise the labor or capital markets wouldn t clear Household Problem Household FOC: β t u (c t ) λp t = 0 This leads to a difference equation: where β t u (c t ) β t+1 u (c t+1 ) = λp t λp t+1 u (c t ) = β p t p t+1 u (c t+1 ) u (c t ) = βr t+1 u (c t+1 ) (5) R t+1 p t = 1 p t+1 q t+1 is the gross interest rate between periods t and t + 1. Equation (5) is called an Euler equation No arbitrage requires R t+1 = r t δ Two ways of transfering resources from one period to the next (or vice versa) Trading goods of different dates in the market Converting goods into capital and renting it out Also follows from FOCs w.r.t. i t, k t Equilibrium From household: From firm: Combining: u (c t ) = β [r t δ] u (c t+1 ) f K (k, 1) = r u (c t ) = β [ f K (k t+1, 1) + 1 δ] u (c t+1 ) (6) 5
6 Plus the resource constraint k t+1 = f (k t, 1) c t + (1 δ) k t (7) (6) and (7) define a system of two difference equations. We need two initial / terminal conditions to have the solution k 0 given is one of them What is the other? 4.4 The steady state and a phase diagram A steady state is defined as {c ss, k ss } such that if c t = c ss and k t = k ss, then according to (6) and (7), c t+1 = c ss and k t+1 = k ss From (6): β [ f K (k ss, 1) + 1 δ] = 1 (8) From (7): k ss = f (k ss, 1) c ss + (1 δ) k ss c ss = f (k ss, 1) δk ss (9) Interpretation Phase diagram: 6
7 Does the system converge to steady state? 5 The Social Planner s Problem Single household, so no need to specify weights in a welfare function Planner solves max β t u (c t ) {c t,i t,k t+1 } k t+1 = (1 δ) k t + i t c t + i i f (k t ) k 0 given This is a special case of a general problem of the form (SLP notation) sup {x t } β t F (x t, x t+1 ) x t+1 Γ (x t ) x 0 given t Mapping: x t k t F (x t, x t+1 ) u ( f (k t ) + (1 δ) k t k t+1 ) Γ (x t ) = [0, f (k t ) + (1 δ) k t ] We ll spend the next class looking at this mathematical problem 7
The Neoclassical Growth Model
The Neoclassical Growth Model 1 Setup Three goods: Final output Capital Labour One household, with preferences β t u (c t ) (Later we will introduce preferences with respect to labour/leisure) Endowment
More informationLinear Capital Taxation and Tax Smoothing
Florian Scheuer 5/1/2014 Linear Capital Taxation and Tax Smoothing 1 Finite Horizon 1.1 Setup 2 periods t = 0, 1 preferences U i c 0, c 1, l 0 sequential budget constraints in t = 0, 1 c i 0 + pbi 1 +
More informationCash-in-Advance Model
Cash-in-Advance Model Prof. Lutz Hendricks Econ720 September 19, 2017 1 / 35 Cash-in-advance Models We study a second model of money. Models where money is a bubble (such as the OLG model we studied) have
More informationRamsey s Growth Model (Solution Ex. 2.1 (f) and (g))
Problem Set 2: Ramsey s Growth Model (Solution Ex. 2.1 (f) and (g)) Exercise 2.1: An infinite horizon problem with perfect foresight In this exercise we will study at a discrete-time version of Ramsey
More informationFoundations of Economics for International Business Supplementary Exercises 2
Foundations of Economics for International Business Supplementary Exercises 2 INSTRUCTOR: XIN TANG Department of World Economics Economics and Management School Wuhan University Fall 205 These tests are
More informationThe Ramsey Model. Lectures 11 to 14. Topics in Macroeconomics. November 10, 11, 24 & 25, 2008
The Ramsey Model Lectures 11 to 14 Topics in Macroeconomics November 10, 11, 24 & 25, 2008 Lecture 11, 12, 13 & 14 1/50 Topics in Macroeconomics The Ramsey Model: Introduction 2 Main Ingredients Neoclassical
More informationMacroeconomics I, UPF Professor Antonio Ciccone SOLUTIONS PROBLEM SET 1
Macroeconomics I, UPF Professor Antonio Ciccone SOLUTIONS PROBLEM SET 1 1.1 (from Romer Advanced Macroeconomics Chapter 1) Basic properties of growth rates which will be used over and over again. Use the
More informationEco504 Fall 2010 C. Sims CAPITAL TAXES
Eco504 Fall 2010 C. Sims CAPITAL TAXES 1. REVIEW: SMALL TAXES SMALL DEADWEIGHT LOSS Static analysis suggests that deadweight loss from taxation at rate τ is 0(τ 2 ) that is, that for small tax rates the
More informationProblem set Fall 2012.
Problem set 1. 14.461 Fall 2012. Ivan Werning September 13, 2012 References: 1. Ljungqvist L., and Thomas J. Sargent (2000), Recursive Macroeconomic Theory, sections 17.2 for Problem 1,2. 2. Werning Ivan
More informationOverlapping Generations Model: Dynamic Efficiency and Social Security
Overlapping Generations Model: Dynamic Efficiency and Social Security Prof. Lutz Hendricks Econ720 August 23, 2017 1 / 28 Issues The OLG model can have inefficient equilibria. We solve the problem of a
More informationSTATE UNIVERSITY OF NEW YORK AT ALBANY Department of Economics. Ph. D. Comprehensive Examination: Macroeconomics Fall, 2016
STATE UNIVERSITY OF NEW YORK AT ALBANY Department of Economics Ph. D. Comprehensive Examination: Macroeconomics Fall, 2016 Section 1. (Suggested Time: 45 Minutes) For 3 of the following 6 statements, state
More informationLinear Capital Taxation and Tax Smoothing
Florian Scheuer 2/25/2016 Linear Capital Taxation and Tax Smoothing 1 Finite Horizon 1.1 Setup 2 periods t = 0, 1 preferences U i c 0, c 1, l 0 sequential budget constraints in t = 0, 1 c i 0 + pbi 1 +
More information004: Macroeconomic Theory
004: Macroeconomic Theory Lecture 14 Mausumi Das Lecture Notes, DSE October 21, 2014 Das (Lecture Notes, DSE) Macro October 21, 2014 1 / 20 Theories of Economic Growth We now move on to a different dynamics
More informationI. The Solow model. Dynamic Macroeconomic Analysis. Universidad Autónoma de Madrid. September 2015
I. The Solow model Dynamic Macroeconomic Analysis Universidad Autónoma de Madrid September 2015 Dynamic Macroeconomic Analysis (UAM) I. The Solow model September 2015 1 / 43 Objectives In this first lecture
More informationGrowth Theory: Review
Growth Theory: Review Lecture 1, Endogenous Growth Economic Policy in Development 2, Part 2 March 2009 Lecture 1, Endogenous Growth 1/28 Economic Policy in Development 2, Part 2 Outline Review: From Solow
More informationFinal Exam II (Solutions) ECON 4310, Fall 2014
Final Exam II (Solutions) ECON 4310, Fall 2014 1. Do not write with pencil, please use a ball-pen instead. 2. Please answer in English. Solutions without traceable outlines, as well as those with unreadable
More information1 Dynamic programming
1 Dynamic programming A country has just discovered a natural resource which yields an income per period R measured in terms of traded goods. The cost of exploitation is negligible. The government wants
More informationProblem Set 3. Thomas Philippon. April 19, Human Wealth, Financial Wealth and Consumption
Problem Set 3 Thomas Philippon April 19, 2002 1 Human Wealth, Financial Wealth and Consumption The goal of the question is to derive the formulas on p13 of Topic 2. This is a partial equilibrium analysis
More informationPrinciples of Optimal Taxation
Principles of Optimal Taxation Mikhail Golosov Golosov () Optimal Taxation 1 / 54 This lecture Principles of optimal taxes Focus on linear taxes (VAT, sales, corporate, labor in some countries) (Almost)
More informationMoney in a Neoclassical Framework
Money in a Neoclassical Framework Noah Williams University of Wisconsin-Madison Noah Williams (UW Madison) Macroeconomic Theory 1 / 21 Money Two basic questions: 1 Modern economies use money. Why? 2 How/why
More informationSTATE UNIVERSITY OF NEW YORK AT ALBANY Department of Economics. Ph. D. Preliminary Examination: Macroeconomics Fall, 2009
STATE UNIVERSITY OF NEW YORK AT ALBANY Department of Economics Ph. D. Preliminary Examination: Macroeconomics Fall, 2009 Instructions: Read the questions carefully and make sure to show your work. You
More informationChapter 6. Endogenous Growth I: AK, H, and G
Chapter 6 Endogenous Growth I: AK, H, and G 195 6.1 The Simple AK Model Economic Growth: Lecture Notes 6.1.1 Pareto Allocations Total output in the economy is given by Y t = F (K t, L t ) = AK t, where
More informationI. The Solow model. Dynamic Macroeconomic Analysis. Universidad Autónoma de Madrid. Autumn 2014
I. The Solow model Dynamic Macroeconomic Analysis Universidad Autónoma de Madrid Autumn 2014 Dynamic Macroeconomic Analysis (UAM) I. The Solow model Autumn 2014 1 / 38 Objectives In this first lecture
More informationTransactions and Money Demand Walsh Chapter 3
Transactions and Money Demand Walsh Chapter 3 1 Shopping time models 1.1 Assumptions Purchases require transactions services ψ = ψ (m, n s ) = c where ψ n s 0, ψ m 0, ψ n s n s 0, ψ mm 0 positive but diminishing
More informationI. The Solow model. Dynamic Macroeconomic Analysis. Universidad Autónoma de Madrid. Autumn 2014
I. The Solow model Dynamic Macroeconomic Analysis Universidad Autónoma de Madrid Autumn 2014 Dynamic Macroeconomic Analysis (UAM) I. The Solow model Autumn 2014 1 / 33 Objectives In this first lecture
More informationMacro (8701) & Micro (8703) option
WRITTEN PRELIMINARY Ph.D EXAMINATION Department of Applied Economics Jan./Feb. - 2010 Trade, Development and Growth For students electing Macro (8701) & Micro (8703) option Instructions Identify yourself
More informationMacroeconomics and finance
Macroeconomics and finance 1 1. Temporary equilibrium and the price level [Lectures 11 and 12] 2. Overlapping generations and learning [Lectures 13 and 14] 2.1 The overlapping generations model 2.2 Expectations
More informationLecture Notes. Macroeconomics - ECON 510a, Fall 2010, Yale University. Fiscal Policy. Ramsey Taxation. Guillermo Ordoñez Yale University
Lecture Notes Macroeconomics - ECON 510a, Fall 2010, Yale University Fiscal Policy. Ramsey Taxation. Guillermo Ordoñez Yale University November 28, 2010 1 Fiscal Policy To study questions of taxation in
More information14.05 Lecture Notes. Endogenous Growth
14.05 Lecture Notes Endogenous Growth George-Marios Angeletos MIT Department of Economics April 3, 2013 1 George-Marios Angeletos 1 The Simple AK Model In this section we consider the simplest version
More informationMacroeconomics 2. Lecture 5 - Money February. Sciences Po
Macroeconomics 2 Lecture 5 - Money Zsófia L. Bárány Sciences Po 2014 February A brief history of money in macro 1. 1. Hume: money has a wealth effect more money increase in aggregate demand Y 2. Friedman
More information(Incomplete) summary of the course so far
(Incomplete) summary of the course so far Lecture 9a, ECON 4310 Tord Krogh September 16, 2013 Tord Krogh () ECON 4310 September 16, 2013 1 / 31 Main topics This semester we will go through: Ramsey (check)
More informationPart A: Questions on ECN 200D (Rendahl)
University of California, Davis Date: June 27, 2011 Department of Economics Time: 5 hours Macroeconomics Reading Time: 20 minutes PRELIMINARY EXAMINATION FOR THE Ph.D. DEGREE Directions: Answer all questions.
More informationFor students electing Macro (8701/Prof. Roe) & Micro (8703/Prof. Glewwe) option
WRITTEN PRELIMINARY Ph.D EXAMINATION Department of Applied Economics Jan./Feb. - 2011 Trade, Development and Growth For students electing Macro (8701/Prof. Roe) & Micro (8703/Prof. Glewwe) option Instructions
More informationA 2 period dynamic general equilibrium model
A 2 period dynamic general equilibrium model Suppose that there are H households who live two periods They are endowed with E 1 units of labor in period 1 and E 2 units of labor in period 2, which they
More informationEconomics 2010c: -theory
Economics 2010c: -theory David Laibson 10/9/2014 Outline: 1. Why should we study investment? 2. Static model 3. Dynamic model: -theory of investment 4. Phase diagrams 5. Analytic example of Model (optional)
More informationFluctuations. Shocks, Uncertainty, and the Consumption/Saving Choice
Fluctuations. Shocks, Uncertainty, and the Consumption/Saving Choice Olivier Blanchard April 2005 14.452. Spring 2005. Topic2. 1 Want to start with a model with two ingredients: Shocks, so uncertainty.
More informationEquilibrium with Production and Labor Supply
Equilibrium with Production and Labor Supply ECON 30020: Intermediate Macroeconomics Prof. Eric Sims University of Notre Dame Fall 2016 1 / 20 Production and Labor Supply We continue working with a two
More informationAnswers to Microeconomics Prelim of August 24, In practice, firms often price their products by marking up a fixed percentage over (average)
Answers to Microeconomics Prelim of August 24, 2016 1. In practice, firms often price their products by marking up a fixed percentage over (average) cost. To investigate the consequences of markup pricing,
More informationSlides III - Complete Markets
Slides III - Complete Markets Julio Garín University of Georgia Macroeconomic Theory II (Ph.D.) Spring 2017 Macroeconomic Theory II Slides III - Complete Markets Spring 2017 1 / 33 Outline 1. Risk, Uncertainty,
More informationMacroeconomics Qualifying Examination
Macroeconomics Qualifying Examination January 211 Department of Economics UNC Chapel Hill Instructions: This examination consists of three questions. Answer all questions. Answering only two questions
More informationCh.3 Growth and Accumulation. Production function and constant return to scale
1 Econ 302 Intermediate Macroeconomics Chul-Woo Kwon Ch.3 Growth and Accumulation I. Introduction A. Growth accounting and source of economic growth B. The neoclassical growth model: the Simple Solow growth
More informationPublic budget accounting and seigniorage. 1. Public budget accounting, inflation and debt. 2. Equilibrium seigniorage
Monetary Economics: Macro Aspects, 2/2 2015 Henrik Jensen Department of Economics University of Copenhagen Public budget accounting and seigniorage 1. Public budget accounting, inflation and debt 2. Equilibrium
More informationGraduate Macro Theory II: Fiscal Policy in the RBC Model
Graduate Macro Theory II: Fiscal Policy in the RBC Model Eric Sims University of otre Dame Spring 7 Introduction This set of notes studies fiscal policy in the RBC model. Fiscal policy refers to government
More informationEquilibrium with Production and Endogenous Labor Supply
Equilibrium with Production and Endogenous Labor Supply ECON 30020: Intermediate Macroeconomics Prof. Eric Sims University of Notre Dame Spring 2018 1 / 21 Readings GLS Chapter 11 2 / 21 Production and
More informationNotes on Macroeconomic Theory. Steve Williamson Dept. of Economics Washington University in St. Louis St. Louis, MO 63130
Notes on Macroeconomic Theory Steve Williamson Dept. of Economics Washington University in St. Louis St. Louis, MO 63130 September 2006 Chapter 2 Growth With Overlapping Generations This chapter will serve
More informationEconomics 121b: Intermediate Microeconomics Final Exam Suggested Solutions
Dirk Bergemann Department of Economics Yale University Economics 121b: Intermediate Microeconomics Final Exam Suggested Solutions 1. Both moral hazard and adverse selection are products of asymmetric information,
More informationSTATE UNIVERSITY OF NEW YORK AT ALBANY Department of Economics. Ph. D. Comprehensive Examination: Macroeconomics Spring, 2016
STATE UNIVERSITY OF NEW YORK AT ALBANY Department of Economics Ph. D. Comprehensive Examination: Macroeconomics Spring, 2016 Section 1. Suggested Time: 45 Minutes) For 3 of the following 6 statements,
More informationArrow-Debreu Equilibrium
Arrow-Debreu Equilibrium Econ 2100 Fall 2017 Lecture 23, November 21 Outline 1 Arrow-Debreu Equilibrium Recap 2 Arrow-Debreu Equilibrium With Only One Good 1 Pareto Effi ciency and Equilibrium 2 Properties
More information202: Dynamic Macroeconomics
202: Dynamic Macroeconomics Solow Model Mausumi Das Delhi School of Economics January 14-15, 2015 Das (Delhi School of Economics) Dynamic Macro January 14-15, 2015 1 / 28 Economic Growth In this course
More informationANSWER: We can find consumption and saving by solving:
Economics 154a, Spring 2005 Intermediate Macroeconomics Problem Set 4: Answer Key 1. Consider an economy that consists of a single consumer who lives for two time periods. The consumers income in the current
More informationMoney, Output, and the Nominal National Debt. Bruce Champ and Scott Freeman (AER 1990)
Money, Output, and the Nominal National Debt Bruce Champ and Scott Freeman (AER 1990) OLG model Diamond (1965) version of Samuelson (1958) OLG model Let = 1 population of young Representative young agent
More information1 A tax on capital income in a neoclassical growth model
1 A tax on capital income in a neoclassical growth model We look at a standard neoclassical growth model. The representative consumer maximizes U = β t u(c t ) (1) t=0 where c t is consumption in period
More informationQuestion 1 Consider an economy populated by a continuum of measure one of consumers whose preferences are defined by the utility function:
Question 1 Consider an economy populated by a continuum of measure one of consumers whose preferences are defined by the utility function: β t log(c t ), where C t is consumption and the parameter β satisfies
More informationGraduate Macro Theory II: The Real Business Cycle Model
Graduate Macro Theory II: The Real Business Cycle Model Eric Sims University of Notre Dame Spring 2017 1 Introduction This note describes the canonical real business cycle model. A couple of classic references
More informationSTATE UNIVERSITY OF NEW YORK AT ALBANY Department of Economics. Ph. D. Comprehensive Examination: Macroeconomics Spring, 2009
STATE UNIVERSITY OF NEW YORK AT ALBANY Department of Economics Ph. D. Comprehensive Examination: Macroeconomics Spring, 2009 Section 1. (Suggested Time: 45 Minutes) For 3 of the following 6 statements,
More informationLecture 2 Labor Supply and Labor Demand. Noah Williams
Lecture 2 Labor Supply and Labor Demand Noah Williams University of Wisconsin - Madison Economics 312/702 Spring 2016 Non-Participation In previous we assumed an interior solution, l < h or N > 0. But
More informationLecture 11. The firm s problem. Randall Romero Aguilar, PhD II Semestre 2017 Last updated: October 16, 2017
Lecture 11 The firm s problem Randall Romero Aguilar, PhD II Semestre 2017 Last updated: October 16, 2017 Universidad de Costa Rica EC3201 - Teoría Macroeconómica 2 Table of contents 1. The representative
More informationLecture 2 General Equilibrium Models: Finite Period Economies
Lecture 2 General Equilibrium Models: Finite Period Economies Introduction In macroeconomics, we study the behavior of economy-wide aggregates e.g. GDP, savings, investment, employment and so on - and
More informationLecture notes: 101/105 (revised 9/27/00) Lecture 3: national Income: Production, Distribution and Allocation (chapter 3)
Lecture notes: 101/105 (revised 9/27/00) Lecture 3: national Income: Production, Distribution and Allocation (chapter 3) 1) Intro Have given definitions of some key macroeconomic variables. Now start building
More informationIn the Name of God. Macroeconomics. Sharif University of Technology Problem Bank
In the Name of God Macroeconomics Sharif University of Technology Problem Bank 1 Microeconomics 1.1 Short Questions: Write True/False/Ambiguous. then write your argument for it: 1. The elasticity of demand
More informationMonetary Economics. Money in Utility. Seyed Ali Madanizadeh. February Sharif University of Technology
Monetary Economics Money in Utility Seyed Ali Madanizadeh Sharif University of Technology February 2014 Introduction MIU setup FOCs Interpretations and implications Neutrality and superneutrality Equilibrium
More informationConsumption and Asset Pricing
Consumption and Asset Pricing Yin-Chi Wang The Chinese University of Hong Kong November, 2012 References: Williamson s lecture notes (2006) ch5 and ch 6 Further references: Stochastic dynamic programming:
More informationPh.D. Preliminary Examination MICROECONOMIC THEORY Applied Economics Graduate Program August 2017
Ph.D. Preliminary Examination MICROECONOMIC THEORY Applied Economics Graduate Program August 2017 The time limit for this exam is four hours. The exam has four sections. Each section includes two questions.
More informationKiyotaki and Moore [1997]
Kiyotaki and Moore [997] Econ 235, Spring 203 Heterogeneity: why else would you need markets! When assets serve as collateral, prices affect allocations Importance of who is pricing an asset Best users
More informationMoney in an RBC framework
Money in an RBC framework Noah Williams University of Wisconsin-Madison Noah Williams (UW Madison) Macroeconomic Theory 1 / 36 Money Two basic questions: 1 Modern economies use money. Why? 2 How/why do
More informationAnswers to June 11, 2012 Microeconomics Prelim
Answers to June, Microeconomics Prelim. Consider an economy with two consumers, and. Each consumer consumes only grapes and wine and can use grapes as an input to produce wine. Grapes used as input cannot
More informationX ln( +1 ) +1 [0 ] Γ( )
Problem Set #1 Due: 11 September 2014 Instructor: David Laibson Economics 2010c Problem 1 (Growth Model): Recall the growth model that we discussed in class. We expressed the sequence problem as ( 0 )=
More informationd. Find a competitive equilibrium for this economy. Is the allocation Pareto efficient? Are there any other competitive equilibrium allocations?
Answers to Microeconomics Prelim of August 7, 0. Consider an individual faced with two job choices: she can either accept a position with a fixed annual salary of x > 0 which requires L x units of labor
More informationElements of Economic Analysis II Lecture II: Production Function and Profit Maximization
Elements of Economic Analysis II Lecture II: Production Function and Profit Maximization Kai Hao Yang 09/26/2017 1 Production Function Just as consumer theory uses utility function a function that assign
More informationMacroeconomic Implications of Size-Dependent Policies
Macroeconomic Implications of Size-Dependent Policies N. Guner, G. Ventura and Yi Xu Review of Economic Dynamics, 2008 Lian Allub UC3M 9/03/2010 Motivation The Aim of the paper is to evaluate policy distortions
More informationPractice Exam Questions 2
Practice Exam Questions 2 1. There is a household who maximizes discounted utility u(c 1 )+δu(c 2 ) and faces budget constraints, w = L+s+c 1 and rl+s = c 2, where c 1 is consumption in period 1 and c
More informationNotes on Macroeconomic Theory. Steve Williamson Dept. of Economics Washington University in St. Louis St. Louis, MO 63130
Notes on Macroeconomic Theory Steve Williamson Dept. of Economics Washington University in St. Louis St. Louis, MO 63130 September 2006 Chapter 1 Simple Representative Agent Models This chapter deals with
More informationECON 815. A Basic New Keynesian Model II
ECON 815 A Basic New Keynesian Model II Winter 2015 Queen s University ECON 815 1 Unemployment vs. Inflation 12 10 Unemployment 8 6 4 2 0 1 1.5 2 2.5 3 3.5 4 4.5 5 Core Inflation 14 12 10 Unemployment
More informationTopic 4. Introducing investment (and saving) decisions
14.452. Topic 4. Introducing investment (and saving) decisions Olivier Blanchard April 27 Nr. 1 1. Motivation In the benchmark model (and the RBC extension), there was a clear consump tion/saving decision.
More informationExercises in Growth Theory and Empirics
Exercises in Growth Theory and Empirics Carl-Johan Dalgaard University of Copenhagen and EPRU May 22, 2003 Exercise 6: Productive government investments and exogenous growth Consider the following growth
More information1 Fiscal stimulus (Certification exam, 2009) Question (a) Question (b)... 6
Contents 1 Fiscal stimulus (Certification exam, 2009) 2 1.1 Question (a).................................................... 2 1.2 Question (b).................................................... 6 2 Countercyclical
More informationLastrapes Fall y t = ỹ + a 1 (p t p t ) y t = d 0 + d 1 (m t p t ).
ECON 8040 Final exam Lastrapes Fall 2007 Answer all eight questions on this exam. 1. Write out a static model of the macroeconomy that is capable of predicting that money is non-neutral. Your model should
More informationPh.D. Preliminary Examination MICROECONOMIC THEORY Applied Economics Graduate Program June 2017
Ph.D. Preliminary Examination MICROECONOMIC THEORY Applied Economics Graduate Program June 2017 The time limit for this exam is four hours. The exam has four sections. Each section includes two questions.
More informationTopic 6. Introducing money
14.452. Topic 6. Introducing money Olivier Blanchard April 2007 Nr. 1 1. Motivation No role for money in the models we have looked at. Implicitly, centralized markets, with an auctioneer: Possibly open
More informationAn Entrepreneur s Problem Under Perfect Foresight
c April 18, 2013, Christopher D. Carroll EntrepreneurPF An Entrepreneur s Problem Under Perfect Foresight Consider an entrepreneur who wants to maximize the present discounted value of profits after subtracting
More informationECON 581. Introduction to Arrow-Debreu Pricing and Complete Markets. Instructor: Dmytro Hryshko
ECON 58. Introduction to Arrow-Debreu Pricing and Complete Markets Instructor: Dmytro Hryshko / 28 Arrow-Debreu economy General equilibrium, exchange economy Static (all trades done at period 0) but multi-period
More information2. Equlibrium and Efficiency
2. Equlibrium and Efficiency 1 2.1 Introduction competition and efficiency Smith s invisible hand model of competitive economy combine independent decision-making of consumers and firms into a complete
More informationIntroduction to economic growth (2)
Introduction to economic growth (2) EKN 325 Manoel Bittencourt University of Pretoria M Bittencourt (University of Pretoria) EKN 325 1 / 49 Introduction Solow (1956), "A Contribution to the Theory of Economic
More informationMidterm Exam. Monday, March hour, 30 minutes. Name:
San Francisco State University Michael Bar ECON 702 Spring 2019 Midterm Exam Monday, March 18 1 hour, 30 minutes Name: Instructions 1. This is closed book, closed notes exam. 2. No calculators of any kind
More informationSTATE UNIVERSITY OF NEW YORK AT ALBANY Department of Economics. Ph. D. Comprehensive Examination: Macroeconomics Fall, 2010
STATE UNIVERSITY OF NEW YORK AT ALBANY Department of Economics Ph. D. Comprehensive Examination: Macroeconomics Fall, 2010 Section 1. (Suggested Time: 45 Minutes) For 3 of the following 6 statements, state
More informationSTATE UNIVERSITY OF NEW YORK AT ALBANY Department of Economics. Ph. D. Preliminary Examination: Macroeconomics Spring, 2007
STATE UNIVERSITY OF NEW YORK AT ALBANY Department of Economics Ph. D. Preliminary Examination: Macroeconomics Spring, 2007 Instructions: Read the questions carefully and make sure to show your work. You
More informationHomework # 8 - [Due on Wednesday November 1st, 2017]
Homework # 8 - [Due on Wednesday November 1st, 2017] 1. A tax is to be levied on a commodity bought and sold in a competitive market. Two possible forms of tax may be used: In one case, a per unit tax
More informationPart II Classical Theory: Long Run Chapter 3 National Income: Where It Comes From and Where It Goes
Part II Classical Theory: Long Run Chapter 3 National Income: Where It Comes From and Where It Goes Zhengyu Cai Ph.D. Institute of Development Southwestern University of Finance and Economics All rights
More informationMacroeconomics 2. Lecture 6 - New Keynesian Business Cycles March. Sciences Po
Macroeconomics 2 Lecture 6 - New Keynesian Business Cycles 2. Zsófia L. Bárány Sciences Po 2014 March Main idea: introduce nominal rigidities Why? in classical monetary models the price level ensures money
More informationAdvanced Macroeconomics
Advanced Macroeconomics Chapter 5: Government: Expenditures and public finances Günter W. Beck University of Mainz December 14, 2010 Günter W. Beck () Advanced Macroeconomics December 14, 2010 1 / 16 Overview
More informationCh.3 Growth and Accumulation. Production function and constant return to scale
1 Econ 30 Intermediate Macroeconomics Chul-Woo Kwon Ch.3 Growth and Accumulation I. Introduction A. Growth accounting and source of economic growth B. The neoclassical growth model: the Simple Solow growth
More information1 Mar Review. Consumer s problem is. V (z, K, a; G, q z ) = max. subject to. c+ X q z. w(z, K) = zf 2 (K, H(K)) (4) K 0 = G(z, K) (5)
1 Mar 4 1.1 Review ² Stochastic RCE with and without state-contingent asset Consider the economy with shock to production. People are allowed to purchase statecontingent asset for next period. Consumer
More informationRadner Equilibrium: Definition and Equivalence with Arrow-Debreu Equilibrium
Radner Equilibrium: Definition and Equivalence with Arrow-Debreu Equilibrium Econ 2100 Fall 2017 Lecture 24, November 28 Outline 1 Sequential Trade and Arrow Securities 2 Radner Equilibrium 3 Equivalence
More information004: Macroeconomic Theory
004: Macroeconomic Theory Lecture 13 Mausumi Das Lecture Notes, DSE October 17, 2014 Das (Lecture Notes, DSE) Macro October 17, 2014 1 / 18 Micro Foundation of the Consumption Function: Limitation of the
More informationProfit Max and RTS. Compare F(tL, tk) to tf(l,k) (where t>1) Which is the same as comparing doubling 1 inputs to doubling outputs
Profit Max and RTS This handout includes 3 sections: calculating returns to scale, the Impact of RTS on profit max, and an application problem. In this handout, I assume constant price, wage, and rent.
More informationTechniques for Calculating the Efficient Frontier
Techniques for Calculating the Efficient Frontier Weerachart Kilenthong RIPED, UTCC c Kilenthong 2017 Tee (Riped) Introduction 1 / 43 Two Fund Theorem The Two-Fund Theorem states that we can reach any
More informationFeb. 20th, Recursive, Stochastic Growth Model
Feb 20th, 2007 1 Recursive, Stochastic Growth Model In previous sections, we discussed random shocks, stochastic processes and histories Now we will introduce those concepts into the growth model and analyze
More informationDUOPOLY. MICROECONOMICS Principles and Analysis Frank Cowell. July 2017 Frank Cowell: Duopoly. Almost essential Monopoly
Prerequisites Almost essential Monopoly Useful, but optional Game Theory: Strategy and Equilibrium DUOPOLY MICROECONOMICS Principles and Analysis Frank Cowell 1 Overview Duopoly Background How the basic
More informationChapter 3 Introduction to the General Equilibrium and to Welfare Economics
Chapter 3 Introduction to the General Equilibrium and to Welfare Economics Laurent Simula ENS Lyon 1 / 54 Roadmap Introduction Pareto Optimality General Equilibrium The Two Fundamental Theorems of Welfare
More informationEconomic Growth I Macroeconomics Finals
Economic Growth I Macroeconomics Finals Introduction and the Solow growth model Martin Ellison Nuffield College Hilary Term 2016 The Wealth of Nations Performance of economy over many years Growth a recent
More information