Now consider the Ramsey model with a Cobb-Douglas aggregate production function, y = ka and a...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Now consider the Ramsey model with a Cobb-Douglas aggregate production function, y = ka and a = 0.3. Assume the discount rate p = 5%, population growth n = 2%, technology growth g = 3%, and there is no capital depreciation. (a) Derive k*, y, and c as functions of the model parameters and determine their values when the coefficient of relative risk aversion 0 = 5. (b) How do your answers to part (a) change if the coefficient of relative risk aversion changes to 0 = 2 (i.e., the intertemporal elasticity of substitution rises from 0.2 to 0.5)? (c) Draw the transition given the change in the coefficient of relative risk aversion in the phase diagram for the Ramsey model. (d) For this economy, what is the impact of a permanent fall in the growth rate of technology on the saving rate along the balanced growth path? How does your answer depend on the intertemporal elasticity of substitution? Hint: calculate Os* /ag, where s* = 1-c*/y*. (e) What happens to s given a permanent fall in the growth rate of technology to g = 2% under both scenarios of 0 = 5 and 0 = 2? Now consider the Ramsey model with a Cobb-Douglas aggregate production function, y = ka and a = 0.3. Assume the discount rate p = 5%, population growth n = 2%, technology growth g = 3%, and there is no capital depreciation. (a) Derive k*, y, and c as functions of the model parameters and determine their values when the coefficient of relative risk aversion 0 = 5. (b) How do your answers to part (a) change if the coefficient of relative risk aversion changes to 0 = 2 (i.e., the intertemporal elasticity of substitution rises from 0.2 to 0.5)? (c) Draw the transition given the change in the coefficient of relative risk aversion in the phase diagram for the Ramsey model. (d) For this economy, what is the impact of a permanent fall in the growth rate of technology on the saving rate along the balanced growth path? How does your answer depend on the intertemporal elasticity of substitution? Hint: calculate Os* /ag, where s* = 1-c*/y*. (e) What happens to s given a permanent fall in the growth rate of technology to g = 2% under both scenarios of 0 = 5 and 0 = 2?
Expert Answer:
Answer rating: 100% (QA)
a To find k v and c we need to solve the Ramsey models dynamic optimization problem max t0 t uct subject to yt kta k0 given where 11p is the discount factor uc c11 is the CRRA utility function and is ... View the full answer
Related Book For
Understanding Basic Statistics
ISBN: 9781111827021
6th Edition
Authors: Charles Henry Brase, Corrinne Pellillo Brase
Posted Date:
Students also viewed these business communication questions
-
Do your answers to the last two questions require an assumption that interest rates and expected exchange rate changes are linked by interest parity? Why or why not?
-
How do your answers to 3, 4, and 5 change for a gross negligence cause of action?
-
How do your answers to Problems 16.5 and 16.6 pro-vide insight into a JIT purchasing strategy?
-
In a test on 2000 electric bulbs, it was found that the life of a particular make was normally distributed with an average life of 2040 hos & S.D of bohos Estimate the ne of likely to burn for it...
-
Determining cash flows from investing activities The following information was drawn from the year-end balance sheets of Desoto Company: Additional information regarding transactions occurring during...
-
A bank has a basket of five-year loans with a value of $ 5 million that pay annual interest of $200,000 per annum. Interest payments are conducted semi-annually (twice per year) but the total...
-
Which of the following techniques involves the creation and use of a pair of public and private keys? a. hashing c. symmetric encryption b. asymmetric encryption d. key escrow
-
You are the new manager of the local GreatBuy Electronics store. Top management of GreatBuy Electronics is convinced that management training should include the active participation of store managers...
-
Lawyer Sophia is paid a salary of $100,000 per year. The law firm expects her to spend 2,000 hours a year performing legal work for clients (50 weeks X 40 hours per week). Therefore, for job costing...
-
EYE SPY sells sophisticated video surveillance equipment. EYE SPY sells the equipment and computer integration services together. It does not sell these separately. The equipment cannot operate...
-
Xolani enters into a lease agreement with Y Ltd on 20 September 2011. The officials of Y Ltd know Xolani very well: he has an excellent reputation in the market as being an honest person, and someone...
-
Barley Hopp, Incorporated, manufactures custom-ordered commemorative beer steins. Its standard cost information follows: Standard Unit Standard Quantity Standard Price (Rate) Direct materials (clay)...
-
A retailer purchased eggs at $2.80 per dozen and sold the eggs at 3 eggs for $0.90. What was the retailer's gross profit from purchasing and selling 5 dozen eggs? (1 dozen eggs = 12 eggs)
-
On January 5 , 2 0 2 1 , Singer Company sells 1 5 , 0 0 0 shares of $ 1 par value stock for $ 2 0 per share. They repurchase 1 , 0 0 0 of those shares at $ 2 1 per share on November 1 5 , 2 0 2 1 ....
-
ACME Company manufactures televisions. The company estimated there will be 4 7 , 7 0 0 units in inventory at the beginning of December 2 0 1 9 . ACME wants to have half of that amount in its...
-
As the director of marketing for a company and will provide an analysis of how you would promote your products and/or services to a specific demographic targeted market using social media marketing...
-
1. What is family support, how is it different from spousal support and child support, and what is its primary reason? 2. What is a Duke order? Under what circumstances will a court make a Duke...
-
Multiple Choice Questions: 1. The largest component of aggregate demand is? a. Government purchases. b. Net exports. c. Consumption. d. Investment. 2. A reduction in personal income taxes, other...
-
Suppose two events A and B are mutually exclusive, with P(A) 0 and P(B) 0. By working through the following steps, youll see why two mutually exclusive events are not independent. (a) For mutually...
-
Pyramid Lake is on the Paiute Indian Nation in Nevada. The lake is famous for cutthroat trout. Suppose a friend tells you that the average length of trout caught in Pyramid Lake is = 19 inches....
-
If the original x distribution has a relatively small standard deviation, the confidence interval for will be relatively short.
-
Thornhill Company's income statement shows gross profit of \(\$ 432,000\), cost of goods sold of \(\$ 638,000\), and other expenses totaling \(\$ 390,000\). Compute the amounts of (a) revenue from...
-
Which of the following is not considered in determining contribution to common expenses? a. Income taxes b. Cost of goods sold c. Traceable expenses d. Netsales
-
The manager of which of the following segments of a business is responsible for revenue generation as well as for cost and expense control? a. Cost center b. Accounting department c. Profit center d....
Study smarter with the SolutionInn App