Answer to Question #230152 in Macroeconomics for Ahmed Said

Question

Question 1. Agree or disagree? (40 points) 1 Do you agree or disagree? Explain your answers.

(a) In the Real Business Cycle model, wages correlate perfectly with labour productivity. (b) If the Blanchard-Kahn conditions are violated, then there is no stable equilibrium.

(c) In a model with risk-averse agents and constant consumption growth, there is no equity premium, according to the equity premium formula derived by Mehra and Prescott. (d) The Diamond-Mortensen-Pissarides model is consistent with constant wages, even when there are shocks.

(e) The Frisch elasticity of labour supply captures only the substitution effect of a wage change.

(f) The Kaldor growth facts imply that, on average, wages grow at the same rate as labour productivity.

Answer 1

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