Exam 13: Modern Macroeconomic Models

In the two-period model, suppose a household's income in the first period is $50,000, income in the second period is $60,000, and the real interest rate is 25 percent.Draw a diagram showing the budget constraint.Now, suppose the real interest rate declines to 20 percent.Draw the new budget constraint.For the budget constraints you have drawn, be sure to show the values of the intercepts on each axis.If the household decides that its consumption in period 1 should always be one half of the present value of income, determine whether the household is worse off or better off because of the decline in the real interest rate.Show your work.

What are the advantages and disadvantages of VAR models?

In the two-period model, suppose a household's income in period one is $30,000 and its income in period two is $40,000.Also assume that the household face the real interest rate of 25 percent.What is the present value of the Household's income?​

Which of the following is a criticism leveled against VAR models?

Because RBC models are complicated, researchers generally

In a two-period model, assume that there are 20 households each with an income of $35,000 in period one and an income of $45,000 in period two.The equilibrium rate of interest faced by the household is 50 percent.The government decides to offer each household a tax rebate of $1,500 in period one.As a rational economic agent you know that the government will tax the households in period two, in order to repay its borrowing.With the interest rate unaffected by the government's action, the government will impose a tax of______ per household, in period two.

An RBC researcher who picks a few key parameters based on long-run historical averages of the data is probably

In the two-period model, suppose a household's income in the first period is $40,000, income in the second period is $50,000, and the real interest rate is 25 percent.The government proposes to give the household a tax rebate of $5,000 in the first period, but will tax the household an additional $5,000 × 1.25 = $6,250 in the second period.The household is _____under the government's tax rebate plan compared with before.

A situation in which all markets are in equilibrium and all economic agents have made decisions in their own best interest is called

A model that is based on the decisions of economic agents is known as

If people form their expectations using all the information available to them, they are said to have

An economy has fifty households, all of which have incomes of $25,000 each in period 2.The twenty-five poor households have incomes of $10,000 each in period 1, while the twenty-five rich households have incomes of $20,000 each in period 1.Assume that the price of the good is $1 in both periods.Suppose that each household decides that its consumption in period 1 will equal 50 percent of the present value of its income from both periods. a.Calculate the present value of income for poor households as a function of the interest rate. Calculate the amount that poor households will spend on consumption, as a function of the interest rate.Calculate the amount that poor households will save as a function of the real interest rate.Show your work. b.Calculate the present value of income for rich households as a function of the interest rate. Calculate the amount that rich households will spend on consumption, as a function of the interest rate.Calculate the amount that rich households will save as a function of the real interest rate.Show your work. c.Given the equations you calculated for savings for each type of household and assuming that the households borrow from each other, find the equilibrium value of the interest rate.Show your work.

Describe the general procedures followed by DSGE researchers creating a new model.

In a structural VAR, a restriction that describes the impact of the current-period value of one variable on the value of another variable in the distant future is known as a_____ restriction.

Which of the following is the third step in the procedure of conducting a research by researchers using a DSGE model?​

A model that incorporates time and uncertainty in which prices, wages, and interest rates adjust to bring all markets to equilibrium and which allows economic agents to make decisions in their own interest is known as​

RBC models are said to reproduce some important relationships between variables over the U.S.business cycle. Identify one such relationship from the given options.​

General equilibrium is a situation in which all markets are in _____and all economic agents have made decisions____.

In a two-period model, a household has an income of $20,000 in period one and an income of $25,000 in period two. The household faces an interest rate of 50 percent.What is the present value of the household's income if the income in period one increases to $30,000?

In the two-period model, suppose a household's income in the first period is $30,000, income in the second period is $60,000, and the real interest rate is 30 percent.What is the household's maximum spending in the second period, if it decides to save the entire amount in the first period?