Econ476_hw2

Econ476_hw2 - ECON 476 Macroeconomics II Business Cycles...

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Unformatted text preview: ECON 476: Macroeconomics II: Business Cycles Homework 2 Due Date: Feb 3 (Recitation Hour). For all questions, if necessary, make appropriate assumptions. 1. Consider the following economy where households have identical prefer- ences. Assume that the households own all factors of production (including the initial capital stock k ) all shares in firms and that these endowments are equally distributed across households. Households maximize T X t =0 β t u ( c t , 1- n t ) , < β < 1 given T X t =0 p t [ c t + i t ] ≤ T X t =0 p t [ r t k t + w t n t ] k t +1 = (1- δ ) k t + i t , for t = 0 , 1 ,...T . Here, p t is the price of a unit of output at time t , r t and w t is, respectively, the rental rate and wage rate in unit of output. Firms own nothing. They simply hire labor and capital and pay their services. The production technology is given by a constant returns to scale function y t = z t F ( k t ,n t ). The sequence of productivity { z t } T t =0 is known at time 0. Firms maximize the profittime 0....
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This note was uploaded on 09/06/2011 for the course ECO 476 taught by Professor Chang during the Fall '07 term at Rochester.

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Econ476_hw2 - ECON 476 Macroeconomics II Business Cycles...

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