Do you agree or disagree with the following statement: "If, in the neoclassical model of decision making, the discount factor changes over time, the predictions of the beta-delta model could be mimicked in the neoclassical model." Explain.
What will be an ideal response?
The central prediction of the beta-delta model is time-inconsistency -- i.e. we make a plan for the future but then do not carry through. Changing discount factors with time cannot create this behavior -- unless the changes in discounting are surprises. If an individual anticipates his discount factor changing over time, all his choices will be time-consistent in the standard neoclassical model.
You might also like to view...
Demand is said to be inelastic when
A. the absolute value of the price elasticity of demand exceeds 1. B. an increase in price results in a reduction in total revenue. C. a reduction in price results in an increase in total revenue. D. a reduction in price results in a decrease in total revenue.
If firms make agreements that reduce the amount of competition in a market,
a. the market price usually falls b. they would face penalties under antitrust legislation c. mergers will result d. there must be diseconomies of scale in the industry e. they would face penalties under contract law
One reason Starbucks experienced a decline in sales in the late 2000s is because
A) the product they offered was becoming less differentiated from their competitors' products. B) the coffeehouse market transitioned from being monopolistically competitive to perfectly competitive. C) barriers to entry became more restrictive in the coffeehouse market. D) the number of competitors in the market declined dramatically.
Which of the following best characterizes the economic growth for OECD countries since the mid-1970s?
A) Growth has come to a complete halt. B) Growth has slowed down. C) Growth has not changed since the 1950s and 1960s. D) Growth has increased slightly. E) Growth has increased dramatically.