In a two-period endowment economy, what’s the role of the real interest rate?

Consider an economy where all output (Y) is either consumer goods (C) or investment goods (I) . If income (Y) varies a lot from year to year, and people try to live according the permanent income hypothesis (PIH), which category of output will tend to be more volatile? 

The Quantity Theory of Money (QTM) predicts that a 10% increase in growth rate of money (M) will cause a _____ increase in the growth rate of real GDP (Y). 

In his theoretical work with Kydland, Ed Prescott found that business fluctuations (a.k.a. “business cycles) were a normal part of a fully real economy. 

When the average person in Alaska receives his check from the state’s oil fund, the average Alaskan spends between 40% and 60% of that check on consumer nondurables within 30 days. 

When nominal interest rates rise (ceteris paribus) this causes money demand to rise as a result. 

Robert Lucas, in “Econometric Policy Evaluation: A Critique,” contended that the best way to predict the effect of a tax cut on consumption was to look at the historical relationship between consumption and income. 

Consider a Baby Solow economy where TFP = 1, capital starts off at K0=1000, the savings rate is 50%, and the annual depreciation rate of capital is 10%. What is the steady-state capital stock? 

A country’s production function works like this each year: Y = 4K0.5 It rents capital from the rest of the world at a cost of r per unit of capital per year. Fortunately for us, capital doesn’t depreciate in this country, and since firms are profit maximizing, then MPK=r. The marginal benefit of a unit of capital is the MPK and the marginal cost of a unit of capital is r.  If the rental rate of capital is 0.1 (or 10% per year), how much capital will it rent this year, if firms in this country are profit-maximizers? 

Nobel Laureates Kydland and Prescott argued that