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2. A stochastic growth model with fixed labour supply We consider the stochastic growth model with fixed labour supply analyzed in the lectures on the
2. A stochastic growth model with fixed labour supply We consider the stochastic growth model with fixed labour supply analyzed in the lectures on the Real Business Cycle (RBC) model. Assume that the utility function is Cobb-Douglas but non-additively separable. More precisely, the social planner chooses Cr. Np. Kr+1, Y, as to maximize the following expected utility: M Bi [(C+1)P (1 - N.+1)]-p]1-x] 1-y 1=0 subject to Y = (AN.)"K- - Kr+1 = (1 - 6) Kr + Yr - Cr where Cr is consumption, N, is labour input, A, is technology, K, is capital and Y, is output. Furthermore, 0
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