Unformatted text preview: ˜ k t +1 = (1-˜ δ ) ˜ k t + ˜ σf (1 , ˜ k t ) where ˜ k j = k j γ j . What are ˜ δ, ˜ σ ? You need one additional assumption on f (). What is it? (b) : In a balanced growth path (where ˜ k * = ˜ g ( ˜ k * )) what is the growth rate of k t and y t ? 3 Consumption-Leisure Choice Consider a representative agent whose utility function is given by U ( c,l ) where c is her consumption and l is her leisure. She wants to maximize her utility by solving max c,l U ( c,l ) subject to y = zf (1-l,k ) where k > 0 is given. State minimal assumptions on f and U which guarantee the existance and uniqueness of optimal solution ( c * ,l * ). 4 Finite Horizon Optimal Growth Problem 2.2 (a)(b)(c) from SLP p. 12 1...
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- Fall '07
- Capital accumulation, steady state consumption, state consumption c∗