homework3 - Econ 451: Homework 3 (Due Mar. 4) 1. Consider a...

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Econ 451: Homework 3 (Due Mar. 4) 1. Consider a classical overlapping generations model. Population grows by 20% each generation. Each agent is endowed with 8 units of consumption good when young and nothing when old. When young, each agent consumes half of her endowment and invests the other half into money and capital. If k units of consumption goods are invested into capital this period, then next period, output will be f ( k ) = 3 log(1+ k ) . The marginal rate of return on capital is, therefore, given by f 0 ( k ) = 3 1+ k , which is decreasing in k . The money supply is growing 60% each period. Seigniorage revenue is used to g is constant over time, so total government expenditure at period t is G t = N t g ; it grows by the same rate as population growth, 20% each period. Agents treat &at money and capital investment as perfect substitutes; they are both
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This note was uploaded on 04/06/2010 for the course ECON 0 at Pennsylvania State University, University Park.

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homework3 - Econ 451: Homework 3 (Due Mar. 4) 1. Consider a...

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