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Unformatted text preview: Partial Answers: Final Practice Questions May 5, 2006 Question 1 Solve for the price of stocks, p t Lets assume that the total income of the young is y t , so per capita income of the young is y t / (1 ) (we could assume y t is per capita income for the young - the expressions would end up slightly di f erent, but with exactly the same f avor) Given the conjecture for individual consumption rules, aggregate consump- tion is given by C t = (1 ) P a =1 a 1 c a t = (1 ) (1 ) y t 1 + (1 )( s 2 t ( p t + d t )) + 2 (1 )( s 3 t ( p t + d t )) + ... = (1 )(1 ) y t 1 + ( s 2 t ( p t + d t )) + 2 ( s 3 t ( p t + d t )) + ... = (1 ) y t + (1 )(1 )( p t + d t ) ( s 2 t ) + 2 ( s 3 t ) + ... = (1 )( y t + p t + d t ) where in the last step we use the fact that the old, in total, hold all the shares, so (1 ) ( s 2 t ) + 2...
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