Please answer in details Question:

1. Consider two closed economies that have the same real interest rate. If consump- tion growth is higher and less volatile in Economy A relative to Economy B, what implications does this have for preferences in the two economies? 2. One of the stylized facts of growth is a growing wage rate and a (relatively) constant labor supply. What restrictions does this place on agents' preferences? 3. In the Solow model, what happens when there is a permanent increase in the savings rate? Describe both the transition and steady-state effects. What economic forces are at work? 4. An equity is a claim to a stream of future dividends. Suppose that dividends grow at a constant rate g and are discounted at a constant rate r, with r > g. There is no uncertainty. The price of the equity is the present discounted value of this dividend stream. What is the price-dividend ratio? (Hint: I would do this in continuous time, but you don't have to.) 5. Re question (4), what happens to the price-dividend ratio when there is a permanent increase in ? How about when there is a permanent increase in g? Briefly provide economic intuition for each. Longer Answer Questions (Each question is worth 25 points.) 6. Risk neutrality v. certainty equivalence: Imagine a consumer with time-separable preferences, where 0