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Past Exam for ECN 200E - Macro Theory with Salyer at UC Davis (UCD)

Exam Information

Material Type:Mid-Term
Professor:Salyer
Class:ECN 200E - Macro Theory
Subject:Economics
University:University of California - Davis
Term:Spring 1999
Keywords:
  • Programming Problem
  • The Economy
  • Asset Pricing Model
  • Representative
  • Dynamic Programming
  • Consumption
  • Characterization
  • Conditional
  • Preferences
  • Distribution
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Professor Salyer, Economics 200E, Spring 1999 Midterm Examination Answer all questions -points for each question are in parentheses. Provide explanations and intuition for your answers. 1.(10) What is the characterization of risk in the Lucas asset pricing model? 2.(10) Describe the intuition for Hall's test of the permanent income hypothesis. 3.(20) Consider the economy studied by Mehra and Prescott: a representative agent exchange economy in which the endowment grows at the random rate A I' Assume that this growth rate is independently and identically distributed over time. Agents have isoelastic preferences and trade equity which entitles the owner to the future dividend stream, {X I +,}:I' and one period bonds which cost PI units of consumption in period t and return 1 unit of consumption in the following period. a. Set up the agent's optimization problem as a dynamic programming problem. Identify the state variables. b. Derive and interpret the necessary conditions associate...

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