Scribd
Upload
28 views5 pages

2012 June Problem

macro

Uploaded by

Rajendra Patidar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF or read online on Scribd
28 views5 pages

2012 June Problem

macro

Uploaded by

Rajendra Patidar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF or read online on Scribd
You are on page 1/ 5
2012 Macro Qualifier (June) Instructions: There are two parts. They are equally weighted. Follow the in- structions given for each part. You have 4 hours. Part 1 1. Consider the following growth model where the planner chooses sequences of consump- tion in order to max > Bt log(ce), = Ste Cet hess S Ae(he)®,t 2 0, ky > 0. Suppose that the sequence {Ay;t > 0} follows a periodic pattern, that is, Ar = 1 for $=0,2,4,... and Ay =A > 1 for t= 1,3,5,... (2) Set up the Bellman functional equations associated with odd period and even period. (b) Solve for the policy functions applicable to odd periods and policy functions =p- plicable to even periods. (Conjecture that the value function takes the form of a, + be log(k) in even periods and a, +0, log(k) in odd periods, where ae, be, do, bo are parameters) (c) Show that the “steady state” of this dynamic model contains a two-period cycle. 2, Consider an economy with a continuum of identical consumers. The utility of a repre- sentative consumer is a E [= oe , = where f € (0,1), ¢ is consumption and E is the expectation operator. Bach consumer owns 2 trees, indexed by g and b. The fruit of tree i € {9,0}, yi, evolves as where 6; is an aggregate shock whose value is either MT or L. 0 0. C is a consumption index given by “(fowl with C (j) representing the quantity of good i consumed by the household, I assume the existence of a continuum of goods represented by [0, N] interval. ¢ is greater than 1. H hours of time are inelastically supplied for work (in ather words, H is fixed, not a choice variable). ‘The budget constraint is nN [ PC) di =WH+T 5 where W is the nominal wage and T is a lump-sum component of income, or more specifically, T is the dividend income (the houschold is the owner of the firms). Since the right-hand side of the budget constraint is exogenous to the household, the remain- ing problem is finding the optimal allocation of consumption expenditure, which we will solve below. (a) The problem of maximizing C given : i P()CWdi=WH+T (a Is can be expressed by moans of the Lagrangean N ae rd N L= [[ cw? a] fy [f POCwa-wa-T| bo : Derive the associated first-order conditions Pa) _ ( 218) PG) \C(). for any i,j € (0, N). (b) The first order condition can be written as ew= ow (FO) ® Show that substituting (2) into (1) obtains aoe for tea Pa cy) (si) [ Pdi WHT @) 3 (c) Define P = [ Je Pw" ai] F= Show that (3) can be written os avn fr “WH+T ow= (FE) C) (d) By substituting (4) into the definition of C, show that N [ P()C@di= PC lb and therefore the total expenditure is the product of price index times the quantity index. (©) (4) is the downward sloping demand curve. Draw two demand curves with different values of ¢ in a diagram with P (7) plotted on the vertical axis and C'(j) plotted on the horizontal axis. Clearly indicate which curve corresponds to a high € and which curve corresponds to @ low e. 2. (firm’s problem): Bach firm produces a differentiated good with technology Y@=H@) H (3) is firm ?’s labor input. There is no price stickiness. Each firm chooses P (i) to maximize profits defined as PY @-WH() subject to the demand constraint Y@= 8)"e Individual firms take aggregate price level P and aggregate consumption index C as given. (a) Show that the optimal price is Pi=- (HINT: profits can be written as (P (i) — W)Y (i) = (P (i) - W) (Bye) (b) Let (i) denote the maximized profits. What is the ratio of profits to costs, i.e., (i) / (WH (i)), for the firm which is optimally choosing P (i)? How does it depend on the parameter «? Why does it so? 3. (equilibrium): Goods market clearing condition and labor market clearing condition require CO) =Y (i) for any 1 € [0,N] N a-[ H(i ai Because of the symmetry between firms, we can easily find H (i) = H/N in equilibrium. 4 (a) Find the equilibrium aggregate consumption index C. (b) Find the equilibrium relative price P (i) /P for any i € [0, N] (©) Find the equilibrium real wage W/P. (@) Find the labor share WH/PC and the profits share x (i) N/PC in equilibrium. (@) Is the equilibrium allocation efficient? Answer yes or no, and explain why. (f) Let’s do a simple comparative staties with respect to V. How do C, P (i) /P, and W/P change when N gets larger? Give intuition for each of those.

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy