3. Consider a simple Robinson Crusoe model where Crusoe gets utility from consump- tion c and leisure I as u(c, 1), where u is increasing, concave and differentiable in its arguments. Crusoe faces a production function of the form y = Af(n), where n = 1-1 and A is a productivity shock. (a) Depict Crusoe's optimum graphically. Discuss the income and substitution ef- fects on n of a change in A. Do these movements create comovement between consumption and output in this model? (b) Try to provide an exhaustive list of business cycle facts. (c) What business cycle facts does this model account for?
3. Consider a simple Robinson Crusoe model where Crusoe gets utility from consump- tion c and leisure I as u(c, 1), where u is increasing, concave and differentiable in its arguments. Crusoe faces a production function of the form y = Af(n), where n = 1-1 and A is a productivity shock. (a) Depict Crusoe's optimum graphically. Discuss the income and substitution ef- fects on n of a change in A. Do these movements create comovement between consumption and output in this model? (b) Try to provide an exhaustive list of business cycle facts. (c) What business cycle facts does this model account for?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
![3. Consider a simple Robinson Crusoe model where Crusoe gets utility from consump-
tion c and leisure I as u(c. 1), where u is increasing, concave and differentiable in its
arguments. Crusoe faces a production function of the form y = Af(n), where n =
1=1-1
and A is a productivity shock.
(a) Depict Crusoe's optimum graphically. Discuss the income and substitution ef-
fects on n of a change in A. Do these movements create comovement between
consumption and output in this model?
(b) Try to provide an exhaustive list of business cycle facts.
(c) What business cycle facts does this model account for?
2](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F74cbf11a-cec3-4f64-a95a-4fe9b2b8e0f9%2F3fc92ec9-0320-4c28-83b8-527ce5b75941%2Fzusdbve_processed.jpeg&w=3840&q=75)
Transcribed Image Text:3. Consider a simple Robinson Crusoe model where Crusoe gets utility from consump-
tion c and leisure I as u(c. 1), where u is increasing, concave and differentiable in its
arguments. Crusoe faces a production function of the form y = Af(n), where n =
1=1-1
and A is a productivity shock.
(a) Depict Crusoe's optimum graphically. Discuss the income and substitution ef-
fects on n of a change in A. Do these movements create comovement between
consumption and output in this model?
(b) Try to provide an exhaustive list of business cycle facts.
(c) What business cycle facts does this model account for?
2
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