final-practice - A couple of practice questions for the nal...

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A couple of practice questions for the f nal Jonathan Heathcote May 3rd 2006 Question 1: Consider the following economy Each period a continuum of agents of mass (1 δ ) is born These agents discount at rate β, and survive from one period to the next with constant probability δ Each agent born in period t receives an endowment of labor income y t in the f rst period of life. From the second period of life on, agents are retired and consume only out of asset income. At each age, agents can buy stocks (ex dividend) at price p t . The total mass of shares is assumed to be equal to one. Stocks provide a stream of dividends d t y t and d t follow arbitrary stochastic processes There are perfect annuity markets that redistribute the shareholdings of those who die to existing shareholders, in proportion to the amount of shares they hold - thus if an agent of age a at date t purchases x shares and survives to the next period, s a +1 t +1 = x δ Adopt the notation convention that agents are born at age
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final-practice - A couple of practice questions for the nal...

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