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Macro midterm spring


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Macro  midterm spring


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Daniel Ortega


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[Front]


analysis implies that the individual's consumption in a given period is determined not by income that period, but by income over his/her lifetime (Friedman).
[Back]


What does the permanent income hypothesis?

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Macro midterm spring - Details

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K.dot(t) = f(q(t)) and q.dot =rq - Profit(k)
Equations of Motions for Q and K (Phase Diagram)
Y = m - p so the factors that determine how much firms will raise output in response to a price change is the money supply and the magnitude of the price change.
In Lucas's model, what factors determine how much firms will raise their output in response to a rise in the price of said output?
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How did lucas test the predictions of his model?
Refers to the inability of an important class of economic models to explain the average premium of the returns on a well-diversified U.S. equity portfolio over U.S. Treasury Bills observed for more than 100 years. the investor returns on equities have been on average so much higher than returns on U.S. Treasury Bonds, that it is hard to explain why investors buy bonds, even after allowing for a reasonable amount of risk aversion. The intuitive notion that stocks are much riskier than bonds is not a sufficient explanation of the observation that the magnitude of the disparity between the two returns, the equity risk premium (ERP), is so great that it implies an implausibly high level of investor risk aversion that is fundamentally incompatible with other branches of economics, particularly macroeconomics and financial economics.Equity-Premium Puzzle