Question 1
(a) An asset return equals to payoffs of the asset divided by price of the asset. Since the
initial price of the risky asset is 1, payoffs of the risky asset equal to returns of the risky
asset.
1
Question 2
2
Question 3
(a) No, since the numbe

Question 1
Note that here wh also solve (2) because they satisfy the feasibility condition (which
is also the linear constraint in (2)
1
Question 2
2
Question 3
The first-order condition for the social planners problem is that for all h:
h h exp (h wh ) =

Macroeconomic Theory I
Yi-Chan Tsai
21 September 2015
National Taiwan University
1/36
Dynamic Macroeconomic Analysis
A difficulty with the Solow Model is the exogenous savings rate.
There is no theory of how an economy might arrive at s. We dont
know if i

Macroeconomic Theory I
Yi-Chan Tsai
5 October 2015
National Taiwan University
1/40
The finite horizon case
The Social Planners problem is to solve
T
X
t u (ct )
(1)
ct + kt+1 f (kt ), t = 0, ., T ,
(2)
max
cfw_ct ,kt+1 T
t=0
t=0
subject to
ct > 0,
(3)
kt

Competitive Equilibrium
Yi-Chan Tsai
12 October 2015
National Taiwan University
1/60
Competitive General Equilibrium
We have been studying the problem of a benevolent Social Planner
that chooses the allocation of capital and consumption to
maximize the we