Midterm2009_720

Midterm2009_720 - Midterm Exam. Econ720. Spring 2009...

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Midterm Exam. Econ720. Spring 2009 Professor Lutz Hendricks Answer all questions. Write legibly! Write legibly! Write legibly! Write on only one side of each sheet. The total time is 1:30 hours. c ." Then comes the math. .. 1 OLG Model with Human Capital Consider the following two period OLG model. Demographics : Households live for two periods. N t = (1 + n ) t young households are born at date t . Endowments : Each young is endowed with human capital h t and assets b t (in units of the good). b t is an inheritance from the parents. Preferences : Parents enjoy their own consumption and their children±s utility. Preferences V ( b t ; h t ) = u c y t ; c o t +1 ± + ( b t +1 ; h t +1 ) (1) Technologies : Firms rent capital and labor from households at rental prices q t and w t , re- spectively. Firms produce with a constant returns to scale production function, Y t = F ( K t ; L t ) , ± . A young household divides his time between work
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Midterm2009_720 - Midterm Exam. Econ720. Spring 2009...

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