Assignment

Section A



1. What is meant by steady state in the Solow model? Explain how Golden Rule is different from steady state.



2. Explain how the permanent income hypothesis reconciles the difference between short-run and long-run consumption behavior.



Section B



3. Policy makers should stick to rules instead of pursuing discretionary polices. Do you agree with the above statement? Substantiate your answer.



4. Explain in brief the salient features of real business cycle theory. In what respects is it different from other theories of business cycle?



5. Explain why firms may offer a higher wage to workers than the equilibrium wage rate.



6. Bring out the important issues on which Lucas criticizes Keynesian macroeconomics. To what extent the New-Keynesian economists have accepted these criticisms?



7. Write short notes on the following.

a) Rational expectation and adaptive expectation

b) Non-accelerating Inflation Rate of Unemployment