What Makes DSGE Models Difficult to Solve Is

question 32

Multiple Choice

What makes DSGE models difficult to solve is:

• A) the forward-looking consumption decision.
• B) determining the "right" real interest rate.
• C) mathematically solving the utility maximization problem.
• D) solving the permanent-income hypothesis.
• E) parameterizing the model.

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Definitions:

Bounded Rationality Model

A concept in decision-making theories that acknowledges the limitations of human cognitive abilities when making decisions.

Suboptimal Decision

A choice made that is not the best possible or most effective given the circumstances or available options.

Decision Making

Making decisions by determining a choice, obtaining information, and examining alternative approaches.

Conditions

Conditions typically refer to the circumstances or factors affecting the way in which people live or work, especially with regard to their safety or well-being.