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The question asks you to consider the effects of shocks to household preferences in the New Keynesian model. Households The representative household's per period utility function is: C 1 t 1 N 1+ t 1 + ! Zt (4) where Z is a household preference shock, N is hours worked and C is real consumption. The linearized equilibrium conditions are: Etct+1 ct = 1 (it Ett+1) 1 (1 )zt (5) wt = ct + nt (6) And for firms yt = nt (7) wt = t (8) t = Et(t+1) + yt (9) is inversely related to the degree of degree of price stickiness and yt is the output gap (relative to the model with flexible prices) yt = yt y n t (10) Resource constraint yt = ct (11) Policy: it = t (12) where > 1. wt is the real wage, nt is hours worked, yt is output. In deviations from steady state: it is the nominal interest rate, t is inflation. a) Using the equilibrium conditions above, show that this model can be represented by the standard 3 equations Etyt+1 yt = 1 (it Ett+1 r n t ) (14) 8 t = Et(t+1) + yt (15) it = t (16) Where the natural real rate of interest is: r n t b) Using the method of undetermined coefficients, find the response of the output gap and inflation to an exogenous decrease in zt when prices are sticky and monetary policy follows the Taylor Rule above. To do this, guess that the solution for each variable is a linear function of the shock zt : yt = yzt t = zt c) Interpret your results. In particular, explain how, and why, preference shocks affect the output gap and inflation. Briefly comment on how a decrease in zt relates to typical recessions we see in the data. d) Instead of following the Taylor Rule above, policy is now set optimally. Derive the optimal monetary policy rule under discretionary policy. (Hint: As in class, assume that the loss function has quadratic terms for the output gap and inflation, with a relative weight on the output gap. For simplicity, assume the steady state is efficient). What is the optimal path for the output gap and inflation in response to preference shocks under this policy (for this last part you do not need to derive anything)? e) Now suppose the central bank has access to a credible commitment technology. How would your answer to (d) change if the central bank followed the optimal policy rule under commitment? You do not need to derive anything, but briefly explain how commitment policy differs from discretionary policy and whether this would change the optimal path for the output gap and inflation.

Consider the following decentralized real business cycle model with no trend growth. There is a continuum of households and the representative household's preferences are given by: ln (ct hCt1) 1 2 n 2 t (1) Where c is household consumption and C is aggregate consumption (which the household takes as given). The household is infinitely lived and maximizes utility subject to their budget constraint. The household budget constraint can be written as: ct + kt+1 (1 )kt = wtnt + r k t kt + t (2) where w is the real wage, n is hours worked, k is capital, r k is the rental price of capital and are profits from firms. The representative firm produces output using capital k and labor nt : yt = Atk t n 1 t (3) Total factor productivity A follows a Markov chain over the set A = {a1, .....aN } with transition probabilities given by pij . The aggregate resource constraint is Yt = Ct + It where upper case letters denote aggregate variables. a) Write down the household's problem in recursive form and write down the firm's maximization problem. Derive the household's first order conditions and the firm's optimal hiring rules. b) Carefully define a recursive competitive equilibrium. Take care to distinguish between the aggregate and individual state variables and explain any market clearing conditions. c) Linearize the consumption Euler equation you found in part (a) around the deterministic steady state. d) With reference to your answer in part (c) (if you can), discuss how a TFP shock affects consumption in this model. Would the dynamics of consumption be different if consumption preferences were given by ln (ct hct1)? (Hint: note the second term is now household consumption at t 1, not aggregate consumption. You also do not need to derive anything for this question). e) What is the labor supply elasticity in this model? Given this value, how well will the model match the data? Explain.

Building upon Ontario electricity prices, please comment on the strengths of the overall DSM framework you investigated from Ontario . Please also comment on at least one DSM incentive program (e.g., home renovation rebate programs) and one DSM regulation (e.g., building code) within that jurisdiction. As the Unit Discussion progresses and multiple P/T approaches are highlighted by all students, please comment on the shortcomings of the DSM policy, programs and regulations in the P/T that you investigated, versus those in other jurisdiction [10:54 PM, 10/23/2021] Flo: a briefing note for information (not a briefing note for decision) on either electricity prices for Ontario in language that is understandable to an elected official such as a Minister of Energy (as opposed to an expert such as an engineer or economist). The student can choose from among the following leaders in DSM policy and programs: Yukon, BC, Alberta, Manitoba, Ontario, Nova Scotia or New Brunswick. In this briefing note, explain at least two energy services (e.g., space and water heating; from BUSI 3503 and Unit 2 readings) that are included in the DSM programs and regulations, what customer types are targeted (e.g., residential buildings, small commercial, large commercial, industrial, transportation), who operates and manages the DSM, how the programs are funded, and how the regulations are enforced.

The briefing note should be Lengthy and :

written in layperson language that could be understandable to an elected official with limited background on the topic; focused on those topics that are relevant for government decision makers; not including extensive background information that does not aid in making a decision; evidence-based and not anecdotal; and inclusive of at least three citations from the required or optional reading