info@idealtermpapers.com
Suppose we have a simple two-period macro model in which there are three types of individuals. There is no production in this model; people are endowed with income (goods) in each period. But we do have a credit (or capital) market and thus a real interest rate, r. So this is an economy made of individuals like those found in BBM#2 (recall from class). The following table shows each type’s endowment and (utility-maximizing) consumption in each period, as functions of r. All parameters (α, β, γ) are positive. Person Type Period-1 Consumption Period-2 Consumption Period-1 Endowment Period-2 Endowment Type A a/(2(1+r)) a/2 0 a>0 Type B b/(1+r) b(1+r) b>0 b>0 Type C g/2 (g(1+r))/2 g>0 0 a) I have claimed that these consumption values maximize utilities for the respective individuals, even though I have not shown you the respective utility functions or explicitly done the optimization. Is there a quick check you can make ( without doing any formal optimization) to determine whether these stated consumption demands are even “reasonable”? (Hint: for any type of individual, any “genuine” utility-maximizing consumption levels must satisfy a specific condition ¾ what is it?) b) Was the condition that you applied in part (a) a necessary condition for these to be utility-maximizing choices or a sufficient one? Explain. c) Assuming there are N A , N B and N C people of types A, B, and C, respectively, write the condition that determines the equilibrium interest rate in this economy. d) Solve for the equilibrium interest rate, r*. Show the equilibrium in a precisely drawn diagram. e) Show precisely (using math!) how an increase in N A affects r*. Show also how an increase in N C affects r*. Explain any differences that you detect in the two answers. f) “An increase in a country’s population almost certainly raises the real interest rate.” Using the intuition that you (hopefully) gained from this specific model, comment on this statement
[meteor_slideshow slideshow="slide3"]Are you looking for a similar paper or any other quality academic essay? Then look no further. Our research paper writing service is what you require. Our team of experienced writers is on standby to deliver to you an original paper as per your specified instructions with zero plagiarism guaranteed. This is the perfect way you can prepare your own unique academic paper and score the grades you deserve.
[meteor_slideshow slideshow="slide2"]Use the order calculator below and get ordering with idealtermpapers.com now! Contact our live support team for any assistance or inquiry.
[order_calculator]
