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# Ramsey Model

## Abstract

This chapter presents the Ramsey model. It is the benchmark model for most dynamic macroeconomic models that study growth and business cycle phenomena. We first study the deterministic Ramsey model in which the total factor productivity is certain. We contrast the effects of a once-and-for-all change with those of a temporary change in productivity on investment, output, and labor supply. In addition, we distinguish the effects of this change when it is known in advance or only observed at the beginning of the period, *t*, when the shock occurs. Finally, we also introduce uncertainty with respect to the technology level and discuss the real business cycle (RBC) model.

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