Macroeconomics
10th Edition
ISBN: 9781319105990
Author: Mankiw, N. Gregory.
Publisher: Worth Publishers,
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Chapter 16, Problem 4QQ
To determine
Explain the time inconsistency of discretionary policy.
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An actuary analyzes a company’s annual personal auto claims, M and annual commercialauto claims, N . The analysis reveals that V ar(M ) = 1600, V ar(N ) = 900, and thecorrelation between M and N is ρ = 0.64. Compute V ar(M + N ).
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