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(a) Find the Euler equation for an economy that maximizes the present value of current and future consumption subject to the resource constraint and transversality
(a) Find the Euler equation for an economy that maximizes the present value of current and future consumption subject to the resource constraint and transversality condition. (Set up and solve the intertemporal maximization problem; clearly show the constraint and transversality condition) (b) Interpret the Euler equation and depict the equilibrium of this economy in a sim- plified two period graph. (c) Is the optimal level of capital in the long run lower higher than the Golden Rule level? Explain. (d) In a phase diagram, depict the dynamics of the optimal solution. Explain the direction of the arrows using the specific functions, the resource constraint and the Euler equation. Question 3 Using the phase diagram in question 2, illustrate the effects of a permanent technology shock on the levels of capital, output and consumption. What about a temporary tech- nology shock
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