PS01-S11 - University of Minnesota Macroeconomic Policy...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: University of Minnesota Macroeconomic Policy 4731H, Spring 2010 Problem Set # 1 Instructor: Justin Barnette Due date: 2 / 8 / 2011 Question 1 (50 points) Consider an economy with a representative household and a representa- tive firm. The representative household maximizes ∞ X t =0 β t " c 1- σ t 1- σ- l 1+ φ t 1 + φ # σ,φ ≥ subject to the budget constraint ∀ t c t + x t + q t b t +1 = w t l t + r t k t + b t and the capital law of motion ∀ t k t +1 = (1- δ ) k t + x t where c t is time t consumption, l t is time t labor, x t is time t investment, k t +1 is time t +1 capital, b t +1 is bond holdings at t +1 and ( q t ,w t ,r t ) are the price of bonds, wage and rental rate of capital at time t . The representative firm maximizes in any t y t- w t l t- r t k t subject to the constant returns to scale (CRS) technology y t = Ak α t l 1- α t where y t is the level of output. (a) (15 points) From the consumer’s problem, find: i ) consumption-labor decision, ii ) Euler equation, iii ) Non- arbitrage condition....
View Full Document

This note was uploaded on 03/26/2011 for the course ECON 4731H taught by Professor Justinbarnette during the Spring '11 term at Minnesota.

Page1 / 4

PS01-S11 - University of Minnesota Macroeconomic Policy...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online