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Unformatted text preview: Lecture 7 Dynamics of the Cass KoopmansRamsey Model ECON 7240 VII  2 Equations of Motion Factor prices: Instantaneous budget constraint: Euler equation:  = )) ( ) ( ), ( ( ) ( t L t A t K F t r K )) ( ) ( ), ( ( ) ( t L t A t K AF t W L = ) ( ) ( ) ( ) ( ) ( ) ( t C t K t r t L t W dt t dK + =  = ) ( ) ( ln t r dt t C d ECON 7240 VII  3 Intensive Variables Define ) ( ) ( ) ( ) ( t L t A t K t k )) ( ( ) ( ) ( )) ( ) ( ), ( ( ) ( ) ( ) ( ) ( t k f t L t A t L t A t K F t L t A t Y t y = ) ( ) ( ) ( t A t C t c ECON 7240 VII  4 Intensive Equations of Motion Factor prices: Instantaneous budget constraint: Euler equation:  = )) ( ( ' ) ( t k f t r [ ] )) ( ( ' ) ( )) ( ( ) ( t k f t k t k f A t W = ) ( ) ( ) ( )) ( ( ) ( t k g n t c t k f dt t dk + + = g t r dt t c d = ) ( ) ( ln ECON 7240 VII  5 Dynamics of Consumption We can rewrite the Euler equation as Let us define k * such that Since f is strictly concave, If k ( t ) < k *, c ( t ) will increase. If k ( t ) > k *, c ( t ) will decrease....
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This note was uploaded on 01/09/2011 for the course ECON 7230 taught by Professor Feigenbaum during the Spring '10 term at Utah Valley University.
 Spring '10
 Feigenbaum
 Macroeconomics

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