Advanced Microeconomics I
Advanced Microeconomic Analysis, Lecture 4
The important questions concern the effect of changes in
relative prices and real income.
Any change in prices changes also the real incom
(Real Business Cycle, RBC)
N t K t t Ct
I t U t log Ct log 1 N t
Yt At K t1 N t1 K t I t 1 K t 1
At AR 1
log At A log At 1 t t : N 0, 2
(Dynamic Stochastic General Equilibrium, DSGE)
2.Two-period Emdowment EconomyConsider following two-period pure exchange economy.
There is a single consumption good in each period. There are two households who have identical
preferences over consumption given by
u(c1, c2) l n c1 l n c2
due : Tuesday October 11
Do all 5 questions. Each counts 20%.
1. Are the preferences described below strictly monotonic? Convex? Explain briefly.
The person consumes food and clothing. In comparing two bundle