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Econ Final

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Risk Averse
U(E[Y])>E[U(Y)]
Risk Neutral
U(E[Y])=E[U(Y)]
Risk Loving
U(E[Y])<E[U(Y)]
Jensen's Inequality
u'(y)>0 , u"(y)<0 satisfies risk aversion
-u"(y)/u'(y)
absolute risk aversion
-y*u"(y)/u'(y)
relative risk aversion
risk free interest rate
1/(qg+qb)
Expected Return
Expected Payoff/Expected Price
Risk Premium
Expected Return - Risk-free Interest Rate
Complete Market
a contingent claim for every state; complete insurance possible
mean preserving spread
volatility increases, but expected value remains constant
C+I+G+NX
Expenditure Approach
aggregate output
Product Approach
wages+taxes+profits+interest
Income Approach
γ/PT
real cost of bank visits per year
(1/2)CTR
total foregone interest per year, real
√(2γ/PCR)
minimizing T*
√(Cγ/2PR)
real monetary holdings
PY/V
money demand (generally)
ptct≤mt
cash in advance constraint
Rt=0
Friedman Rule
µ=β-1
optimal monetary growth in CIA
β/1+µ+β
optimal consumption in CIA
(1+g)(1+n)
growth of Yt, Kt, Ct at steady state
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