Unformatted text preview: then the consumption at t 1 is c 1 1 − c . (ii) Consuming c at t 0 and c 1 1 − c at t 1 gives utility in the amount of 3 c 2 1 − c . (iii) The choice of c is between 0 and 1.) 5. This question pertains to the AK model in [Ch 5, 1]. The AK model differs from the standard Solow model in that the production function in the AK model is simply Y AK with A 0. (1) Explain why the labor input is omitted in the AK model. (2) What is the marginal product of capital? (3) Verify that when the labor input is constant, the transitional equation is k t 1 sAk t 1 − k t . (4) Verify that as is implied by the equation in part (3), the growth rate of k at t 1 does not depend on the value of k at t ....
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- Spring '07
- Macroeconomics, Implied volatility, The Return