TAsection04hint

TAsection04hint - Problem 2 Solve the problem of the...

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TA section 05 March 4, 2009 Imagine an economy where the representative agent preferences are log c 1 + log (1 l 1 ) + ± [log c 2 + log (1 l 2 )] and he or she chooses to decide how much to consume and work in period 1 and 2. The representative agent has a source of income by supplying labor with w 1 and w 2 for period 1 and 2 respectively. In addition, the representative agent chooses to save, a 2 , which has net return of r . Assume there is no initial asset, i.e. a 1 = 0 , and labor supply is normalized so that it cannot exceed 1 of representative agents and capital demand is also met by saving decision of representative agents, that is l d t = l s t for t = 1 ; 2 and k 2 = a 2 ( we assume k 1 = 0) r , for capital w 1 and w 2 for labor wage. The y = l 1 for period 1 and y 2 = k 2 l 1 2 with ² < 1 . Problem 1 Formulate the problem of the household.

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Unformatted text preview: Problem 2 Solve the problem of the household. Solve for c 1 ; c 2 ; l s 1 ; l s 2 ; a given w 1 ; w 2 ; r Problem 3 Formulate and solve the problem of the &rm. Solve for l d 1 ; l d 2 ; k 2 given w 1 ; w 2 ; r Problem 4 Does the &rm have pro&ts in both periods? Proof and explain. Closely look to the production function whether it is constant to scale or not Problem 5 Find an equilibrium for this economy: With condition derived above, add market clearing conditions and solve for w 1 ; w 2 ; r then c 1 ; c 2 ; l d 1 = l s 1 ; l d 2 = l s 2 ; a = k 2 become functions of parameters, i.e. ±; &; ² , only. 1 Problem 6 Formulate the social planners problem: No prices involved. Only look for allocations, c 1 ; c 2 ; l 1 ; l 2 ; a = k 2 . Economy wide resource constraint replaces household budget constraint. Problem 7 Solve the social planners problem: 2...
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This note was uploaded on 05/13/2010 for the course ECON 110D taught by Professor Schmitt-grohe during the Spring '08 term at Duke.

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TAsection04hint - Problem 2 Solve the problem of the...

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