# hw 5 - 5 In the life-cycle model let u c yt c ot 1 ln c yt...

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Homework 5 (Due March 6) 1. Refer to case 1, Handout 2. Answer the three questions there. 2. Refer to case 2, Handout 2. Use the formula provided there to solve the optimal c 0 , c 1 . 3. Refer to case 3, Handout 2. Use the formula provided there to solve the optimal c 0 , c 1 . 4. Refer to page 17, L4 (example 5). There is a claim saying that corner solutions can be ruled out. The following is a simple way to confirm this clam. (i) First, find the (positive) solution for the last equation in that page. Denote that solution by c 0 , and then compute the value of f c 0 . (ii) Compute the values of f 0 and f 1 1/1.1 . (iii) Compare f c 0 with f 0 and f 1 1/1.1 . (iv) What can you conclude from the comparison in step (iii)?
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Unformatted text preview: 5. In the life-cycle model, let u c yt , c ot 1 ln c yt 1 − ln c ot 1 and F A t , K t , L t A t K t L t 1 − . As in the Solow model, let y t denote the output per worker at t so that y t A t k t . Let 0.5, 0.7, A t 10 all t , and k 1. (1) Compute k t , for t from 0 to 3. Then compute the growth rate of k , for t from 1 to 3. (2) Compute the steady k and y . (As in the Solow model, when there is no technological progress, the economy is in a steady state at t if k t k t 1 .) 6. [page 12, 3] NQ 1 (a, b, c)....
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## This note was uploaded on 04/02/2009 for the course ECON 3140 taught by Professor Mbiekop during the Spring '07 term at Cornell.

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