finalmacro2008ans

# Finalmacro2008ans - Final Exam Macro II Spring 2008 Prof Dean Corbae This version Question I(25 points Consider the following infinite horizon

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d. (7.5 points) Is there a steady state equilibrium where a borrowing constraint which says b t +1 b = ( y ε ) / (1 β S ) is binding? If so, for which type of agent is it binding and what are steady state equilibrium prices and allocations? Answer. Given the answer above, it is the type B agent who has the binding constraint. In the steady state his budget set is given by c B = y + b B (1 q ) where q = β S Since the constraint binds, c B = y + b B (1 q )= y ( y ε )(1 β S ) / (1 β S ε. Market clearing implies c S =2 y ε . Finally, b S =( y ε ) / (1 β S ) . Question II. (55 points) Consider the following search model with indivisible commodities and indivisible money. There is a unit measure of agents and a unit measure of nonstoreable indivisible commodity (i.e. consumption good) types. The proportion of commodity types that can be consumed by any given agent is denoted x (0 , 1) and x also equals the proportion of agents that can consume any given commodity. If an
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## This note was uploaded on 08/06/2008 for the course ECON 387 taught by Professor Corbae during the Spring '07 term at University of Texas at Austin.

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Finalmacro2008ans - Final Exam Macro II Spring 2008 Prof Dean Corbae This version Question I(25 points Consider the following infinite horizon

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