ass5 - Econ 102 Roger E A Farmer Fall 2008 Assignment for...

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Econ 102 Roger E A Farmer Fall 2008 Assignment for Week Five 1. Consider the following difference equations. a) 1 21 tt xx =+ b) 1 0.5 2 =− c) 1 + d) 1 0.5 2 e) 1 1 f) 1 2 g) 1 x x = In all cases t x can be positive or negative. For each equation i) Draw a graph of the equation and plot the line 1 x x = on the same graph. ii) Find the steady state (if it exists). If not – say why. iii) If a steady state exists say if it is stable or unstable. iv) Draw a trajectory that starts at 0 t x = and plot where it will go on your graph. 2. In a two period economy there are three possible outcomes in period 2; A, B or C. The price of three arrow securities are given by 0.2, 0.6, 0.1 Ab C QQ Q == = a) How much would you expect the following assets to sell for in the market? Explain
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