Past Exam for ECN 200E - Macro Theory at UC Davis (UCD)

Exam Information

Material Type:Mid-Term
Class:ECN 200E - Macro Theory
University:University of California - Davis
  • The Economy
  • Programming Problem
  • Representative
  • Diagonal Elements
  • Consumption
  • Dynamic Programming
  • Markov Process
  • Behind (of)
  • Environment
  • The Environment
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Sample Document Text

Professor Salyer, Economics 200E, Spring 01 Midterm Examination Directions: Answer all questions. The questions are equally weighted. 1. Consider a representative agent, stochastic growth model in which output is a linear function of the beginning of period capital stock and a random technology shock. That is ttt kzy = . The depreciation rate of capital is 100%. The shock follows an n-state Markov process; the transition probability matrix is symmetric with diagonal elements 21=pi . The social planner chooses sequences for consumption and capital in order to maximize: ? ? ? ? ? ? ? ? ? ? = ? ? 1 1 1 0 1 1 t tt c E ? ? ? Given this environment, answer the following questions: a. Express the maximization problem as a dynamic programming problem. Be explicit in identifying the state and policy variables. b. Derive and interpret the associated necessary conditions. c. Make an educated guess for the form of the policy function describing optimal consumption. Sho...

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