In a discrete time universe where t {0, 1,...}, a person leaves a bequest to...
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In a discrete time universe where t € {0, 1,...}, a person leaves a bequest to her only child. bt+1= B(Rbt + Yt) Here, bt+1> 0 is the given bequest from the (t)-parent to the (t+1)-child. Hence, be is the bequest left to the (t)-parent by her (t-1)-parent. Each member of the dynasty behaves in a similar way summarized by the above equation. R> 1 is a fixed gross rate of interest, 3 € (0, 1) is a preference parameter representing the preferences, and yt 20 is an exogenous source of income. 1 . In the case of yt = 0 for all t, can you describe the dynamics of b, for any given level of bo? (Hint: Draw a figure where be is on the horizontal axis, and b+1 is on the vertical axis). Now suppose that y = 1 for all t. Can you find a steady-state? Do you have to impose restrictions on model parameters? Discuss. What happens to the dynamics of be if yt+oo? Explain. In a discrete time universe where t € {0, 1,...}, a person leaves a bequest to her only child. bt+1= B(Rbt + Yt) Here, bt+1> 0 is the given bequest from the (t)-parent to the (t+1)-child. Hence, be is the bequest left to the (t)-parent by her (t-1)-parent. Each member of the dynasty behaves in a similar way summarized by the above equation. R> 1 is a fixed gross rate of interest, 3 € (0, 1) is a preference parameter representing the preferences, and yt 20 is an exogenous source of income. 1 . In the case of yt = 0 for all t, can you describe the dynamics of b, for any given level of bo? (Hint: Draw a figure where be is on the horizontal axis, and b+1 is on the vertical axis). Now suppose that y = 1 for all t. Can you find a steady-state? Do you have to impose restrictions on model parameters? Discuss. What happens to the dynamics of be if yt+oo? Explain.
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Related Book For
Smith and Roberson Business Law
ISBN: 978-0538473637
15th Edition
Authors: Richard A. Mann, Barry S. Roberts
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