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Unformatted text preview: TA section 05 March 1, 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 .The &rm produces a &nal good that uses labor and capital as input. Labor demand by the &rm is met by labor supply 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) . The &rm pays rental rate, r , for capital that is &nanced by representative saving asset in period 2 and also w 1 and w 2 for labor wage. The production function of the representative &rm is...
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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.
- Spring '08