2. Consider a Lucas-tree type economy in which the level of the endowment is indepen- dently...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
2. Consider a Lucas-tree type economy in which the level of the endowment is indepen- dently and identically distributed with support xt ≤ (x',x”). Agents trade one- and two-period bonds that have prices plt and p2t, respectively, and return 1 unit of con- sumption at maturity. In addition, agents can purchase a one-period futures contract for the price flt. A futures contract purchased at time t states that the owner agrees to give up f1 units of consumption in period t+1 for the return of 1 unit of consumption in period t + 2. Note that in this economy, equity is not traded; agents receive the endowment, xt, at the beginning of each period. Given this setup, do the following: (a) Assuming standard preferences (i.e. infinitely lived, risk-averse agents), set up the household's maximization problem as a dynamic programming problem. (Sugges- tion: The setup is easier if it is assumed that households sell all two period bonds after holding them for one period.) 2. Consider a Lucas-tree type economy in which the level of the endowment is indepen- dently and identically distributed with support xt ≤ (x',x”). Agents trade one- and two-period bonds that have prices plt and p2t, respectively, and return 1 unit of con- sumption at maturity. In addition, agents can purchase a one-period futures contract for the price flt. A futures contract purchased at time t states that the owner agrees to give up f1 units of consumption in period t+1 for the return of 1 unit of consumption in period t + 2. Note that in this economy, equity is not traded; agents receive the endowment, xt, at the beginning of each period. Given this setup, do the following: (a) Assuming standard preferences (i.e. infinitely lived, risk-averse agents), set up the household's maximization problem as a dynamic programming problem. (Sugges- tion: The setup is easier if it is assumed that households sell all two period bonds after holding them for one period.)
Expert Answer:
Related Book For
Posted Date:
Students also viewed these economics questions
-
Amazon's time trend. In this part of the assignment, you will analyze the effect of time on Amazon'squarterlyrevenue.Youwillbuildtworegressionsmodelinwhich time istheonlyindependentvariable. Linear...
-
QUESTION 4 Mr. Rayan is interested to purchase one unit apartment at IXORA that costs RM329,000. His plan is to pay 20 percent down payment in cash and finance the balance over 25 years at 6.25...
-
KYC's stock price can go up by 15 percent every year, or down by 10 percent. Both outcomes are equally likely. The risk free rate is 5 percent, and the current stock price of KYC is 100. (a) Price a...
-
? Fisheries Bhd is a small listed company involves in fishing and selling fish to the public via retail outlets. The company owns a building that was acquired in early September 2014 for RM1,200,000,...
-
Sun-Rype Products Limited is a manufacturer and marketer of juice-based beverages and fruit-based snacks based in the fruit-growing district of British Columbia but with sales across Canada....
-
What are liquidity ratios? Leverage ratios? Profitability ratios?
-
The company has 2,500 shares of common stock outstanding. What is Liberty's earnings per share? a. 2.04 b. 3.6 times c. \(\$ 1.22\) d. \(\$ 3.05\)
-
Using the data that follows and assuming cost of goods sold is $273,700, prepare the cost of goods sold section of a merchandising income statement (periodic inventory system). Include the amount of...
-
Establishing a benchmark for order fulfillment times (the time it takes for an order to be processed through shipment to the customer) is very important for the marketing success of your product....
-
Skylar and Walter Black have been married for 25 years. They live at 883 Scrub Brush Street, Apt. 52B, Las Vegas, NV 89125. Skylar is a stay-at-home parent and Walt is a high school teacher. Skylars...
-
What steps are today's organizations taking to promote diversity and are these efforts effective? (support your arguments with key research findings on diversity management).
-
The amplitude of the sinusoidal symmetrical ac component of the three-phase short-circuit current of an unloaded synchronous machine decreases from a high initial value to a lower steady-state value,...
-
Which statement is false? a) The gold standard will work only when the gold supply increases as quickly as the worlds need for money. b) The gold standard will work only if all nations agree to...
-
The duration of subtransient fault current is dictated by time ____________ constant and that of transient fault current is dictated by time ____________ constant.
-
The melting and clearing time of a current-limiting fuse is usually specified by a ____________ curve.
-
A typical fusible link metal in fuses is ____________, and a typical filler material is
-
The graph below shows the graphs of several normal distributions, labeled A, B, and C, on the same axis. Determine which normal distribution has the smallest standard deviation. Select the correct...
-
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...
-
Consider the diagram in the next column, and answer the following questions. a. What is the base year? Explain. b. Has this country experienced inflation or deflation since the base year? How can you...
-
At a price of $25,000, producers of midsized automobiles are willing to manufacture and sell 75,000 cars per month. At a price of $35,000, they are willing to produce and sell 125,000 a month. Using...
-
In 2010, the cost of a market basket of goods was $2,000. In 2012, the cost of the same market basket of goods was $2,100. Use the price index formula to calculate the price index for 2012 if 2010 is...
-
What is online processing?
-
What function is performed by an edit program?
-
What is the difference between a minicomputer and a microcomputer?
Study smarter with the SolutionInn App