Q: Consider the model of Section 11.3. Suppose, however
Consider the model of Section 11.3. Suppose, however, that only the firm observes A. In addition, suppose there are only two possible values of A, AB and AG (AB < AG), each occurring with probability...
See AnswerQ: Consider the setup in Problem 5.8. Assume, however
Consider the setup in Problem 5.8. Assume, however, that the technological disturbances (the e’s) are absent and that the instantaneous utility function is u(Ct) = Ct −θ(Ct +νt)2. The ν’s are mean-zer...
See AnswerQ: Consider an economy consisting of a constant population of infinitely lived individuals
Consider an economy consisting of a constant population of infinitely lived individuals. The representative individual maximizes the expected value of∞ t=0 u(Ct)/(1+ρ)t, ρ>0. The instantaneous utility...
See AnswerQ: (a) Use an argument analogous to that used to derive
(a) Use an argument analogous to that used to derive equation (5.23) to show that household optimization requires b/(1 − t) = e−ρEt [wt(1 + rt+1)b/ wt+1(1−t+1)] (b) Show that this condition is implied...
See AnswerQ: Suppose an individual lives for two periods and has utility lnC1 +
Suppose an individual lives for two periods and has utility lnC1 +lnC2. (a) Suppose the individual has labor income of Y1 in the first period of life and zero in the second period. Second-period consu...
See AnswerQ: Consider the problem investigated in (5.16) (5
Consider the problem investigated in (5.16) (5.21). (a) Show that an increase in both w1 and w2 that leaves w1/w2 unchanged does not affect 1 or 2. (b) Now assume that the household has initial wealth...
See AnswerQ: Suppose the period-t utility function, ut, isut =
Suppose the period-t utility function, ut, isut = lnct +b(1−t )1−γ/(1−γ), b >0, γ>0, rather than (5.7). (a) Consider the one-period problem analogous to that investigated in (5.12) (5.15). How, if at...
See AnswerQ: Let A0 denote the value of A in period 0, and
Let A0 denote the value of A in period 0, and let the behavior of ln A be given by equations (5.8) (5.9). (a) Express ln A1, lnA2, and ln A3 in terms of ln A0, εA1, εA2, εA3, A, and g. (b) In light of...
See AnswerQ: Consider the equation of motion for capital, Kt+1 =
Consider the equation of motion for capital, Kt+1 = Kt+Kα t (AtLt)1−α−Ct −Gt −δKt. (a)(...
See AnswerQ: (a) If the ~ At’s are uniformly 0 and if
(a) If the ~ At’s are uniformly 0 and if lnY t evolves according to (5.39), what path does lnY t settle down to? (Hint: Note that we can rewrite [5.39] as lnY t−( n + g)t =Q + α[lnY t−1 −(n+g)(t −1)]+...
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