4. Capital Accumulation Dynamics. Consider that the Rational Expectations Reduced Form solution for capital to a Dynamic Stochastic General Equilibrium Problem is given by: kt = a + pke-1 + N(0,0) (1) where is a technology shock y a = 1. (a) Graph the dynamic sequence (impulse response function) of capital (ko, ki,....) in response to positive unitary technology shock at time t = 0 (6=1, while 64 = 0 W 80 ) for p=1, and p=0.8. Assume that the initial level of capital is k-1=5. (b) Explain the impact of the shocks across the two cases. Are they transi- tory/permanent? 2 (c) Explain why the dynamics in each case imply a permanent shock growth pattern- or a transitory shock cyclical pattern- 4. Capital Accumulation Dynamics. Consider that the Rational Expectations Reduced Form solution for capital to a Dynamic Stochastic General Equilibrium Problem is given by: kt = a + pke-1 + N(0,0) (1) where is a technology shock y a = 1. (a) Graph the dynamic sequence (impulse response function) of capital (ko, ki,....) in response to positive unitary technology shock at time t = 0 (6=1, while 64 = 0 W 80 ) for p=1, and p=0.8. Assume that the initial level of capital is k-1=5. (b) Explain the impact of the shocks across the two cases. Are they transi- tory/permanent? 2 (c) Explain why the dynamics in each case imply a permanent shock growth pattern- or a transitory shock cyclical pattern