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practice final - ECN/APEC 7240 Spring 2010 Practice Final...

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Unformatted text preview: ECN/APEC 7240 Spring 2010 Practice Final Each question should be answered with a clear and concise explanation or proof. You may assume any theorems or results that have been discussed in class unless the question specifically asks you to prove that result. (Results that derive from results you are asked to prove also cannot be assumed.) Yes-no questions should be answered with a supportive proof or counterexample. Please write legibly. 1) Consider a pure exchange economy with a dividend process d t whose growth is governed by a Markov process s t ∈ {0, 1} such that d t = d t- 1 if s t = 0 and d t = λ d t- 1 if s t = 1. The transition matrix for s t is [ ] - = = = + π π 1 1 | Pr 1 i s j s t t for π ∈ (0, 1). Let d = 1 and s = 1. Preferences over consumption are given by = ∑ ∞ = ) ~ ( t t t c u E U β for β ∈ (0, 1), and γ γ- =- 1 ) ( 1 c c u for γ > 1. A feasible consumption plan must satisfy c t ≤ d t for all t ....
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practice final - ECN/APEC 7240 Spring 2010 Practice Final...

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