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3. (16 points) Consider the following two period general equilibrium model with a representative firm and representative household. The representative household solves max U(x, x)
3. (16 points) Consider the following two period general equilibrium model with a representative firm and representative household. The representative household solves max U(x, x) = ln(Ct) + 0.8ln(Ct+1) Ct, Ct+1 Ct+1 t+1/Pt+1 Such that = + 1+r Pt 1+r The firm solves t+1/Pt+1 max + It 1 + it 1 Tt = 4K - It, Pt t+1 = 4K/2 t+1 Pt+1 Kt+1= It + (1 - d)Kt The markets clear Ct + t = 4K/2 Ct+1 = 4K+ (1 - d)kt Suppose K = 4, d = 1, pt = Pt+1 = 1. a) Calculate the general equilibrium values of Ct, Ct+1, It, Kt+1, 7t. List clearly five equations associated with these 5 endogenous variables. (6 points) Ct + t - Pt 3. (16 points) Consider the following two period general equilibrium model with a representative firm and representative household. The representative household solves max U(x, x) = ln(Ct) + 0.8ln(Ct+1) Ct, Ct+1 Ct+1 t+1/Pt+1 Such that = + 1+r Pt 1+r The firm solves t+1/Pt+1 max + It 1 + it 1 Tt = 4K - It, Pt t+1 = 4K/2 t+1 Pt+1 Kt+1= It + (1 - d)Kt The markets clear Ct + t = 4K/2 Ct+1 = 4K+ (1 - d)kt Suppose K = 4, d = 1, pt = Pt+1 = 1. a) Calculate the general equilibrium values of Ct, Ct+1, It, Kt+1, 7t. List clearly five equations associated with these 5 endogenous variables. (6 points) Ct + t - Pt
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