Question: We define the stochasic variables Y 1 and Y 2 the following way: Y 1 : Hourly wage in period 1 Y 2 : Hourly

We define the stochasic variables Y1 and Y2 the following way:

Y1: Hourly wage in period 1

Y2: Hourly wage in period 2

The hourly wage in period 1 is normally distributed with a mean and variance2 which means:

Y1N(,2)

The hourly wage in period 2 is given by:

Y2 =+Y1+U where Y1 and U are independent andUN(0,v2)

Question

What is the conditional mean and variance of Y2 given Y1 = y1?

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