ECON 702 Midterm: ECON702 Midterm2Spring2012Solution
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Instructions: this is closed book, closed notes exam, no calculators of any kind are allowed, show all the calculations, if you need more space, use the back of the page, fully label all graphs. Be precise in explaining the inputs and the output of the function. The function ar1. m simulates t random draws generated according to an ar(1) process: t z t z. T number of random draws from ar(1) process, rho the autocorrelation coefficient , sigma_eps the standard deviation of t , i. e. explain what does sigma_eps*randn(1,1) do. The command randn(1,1) generates a random number drawn from standard normal. The multiplication by makes the standard deviation equal to , distribution: Consider the neoclassical growth model discussed in class. There is a single representative household and a single representative firm, that live forever. , and the lifetime utility is t lcu t lcu t t t.
