Pset6_F2011 - UNIVERSITY OF CALIFORNIA DEPARTMENT OF...

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UNIVERSITY OF CALIFORNIA Economics 202A DEPARTMENT OF ECONOMICS Fall 2010 M. Obstfeld/D. Romer Problem Set 6 Due in lecture Tuesday, November 15 1. Romer, Problem 8.13. 2. Romer, Problem 9.6. 3. In the q-theory model where the initial value of K exceeds its long-run equilibrium value, as the economy moves toward the long-run equilibrium: A. The locus is shifting to the right and the locus is shifting down. B. The locus is shifting to the right and the locus is not shifting. C. The locus is shifting down and the locus is not shifting. D. None of the above. 4. Consider the basic q -theory model of investment. Assume the economy is in long-run equilibrium, so that q = 1, = 0, and = 0. At some date, which we will normalize to t = 0, there is news: the world will end at date T ( T > 0). (That is, there will be no possibility of earning profits or incurring adjustment costs after t = T .) Sketch the resulting paths of q and K over time, and explain your answer.
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Pset6_F2011 - UNIVERSITY OF CALIFORNIA DEPARTMENT OF...

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