Q: Consider the model of Section 10.1. Suppose, however
Consider the model of Section 10.1. Suppose, however, that there are M households, and that household j’s utility is Vj = U(C1) + βs jU(C2), where βs j > 0 for all j and s. That is, households may hav...
See AnswerQ: Consider the model of investment under asymmetric information in Section 10.
Consider the model of investment under asymmetric information in Section 10.2. Suppose that initially the entrepreneur is undertaking the project, and that (1 + r)(1−W) is strictly less than RMAX. Des...
See AnswerQ: Consider the model of Section 10.2 with a different friction
Consider the model of Section 10.2 with a different friction: there is no cost of verifying output, but the entrepreneur can hide fraction 1−f of the project’s output from the investor (with 0 ≤ f ≤ 1...
See AnswerQ: (a) Show that in the model analyzed in equations (
(a) Show that in the model analyzed in equations (10.15) (10.23) of Section 10.4, the unconditional distributions of Ca 2t and Cn 2t are not normal. (b) Explain in a sentence or two why the analysis i...
See AnswerQ: Consider the following variant on the model of noise-trader risk
Consider the following variant on the model of noise-trader risk in equations (10.15) (10.23). There are three periods, denoted 0, 1, and 2. There are two assets. The first is a safe asset in perfectl...
See AnswerQ: Consider the previous problem. For simplicity, assume A0 = 0
Consider the previous problem. For simplicity, assume A0 = 0. Now, however, there is a third type of agent: hedge-fund managers. They are born in period 0 and care only about consumption in period 2....
See AnswerQ: Consider Problem 10.6. Suppose, however, that the
Consider Problem 10.6. Suppose, however, that the demand of the period-0 noise traders is not fully persistent, so that noise traders’ demand in period 1 is ρN0+N1,ρ0. They have no initial wealth. (a)...
See AnswerQ: Consider the model of Section 11.4. Suppose the economy
Consider the model of Section 11.4. Suppose the economy is initially in equilibrium, and that y then falls permanently. Suppose, however, that entry and exit are ruled out; thus the total number of jo...
See AnswerQ: This problem asks you to show that with some natural variants on
This problem asks you to show that with some natural variants on the approach to modeling agency riskin Problem10.7, consumption is not linear in the shocks, which renders the model intractable. (a) C...
See AnswerQ: Use the fact that the growth rate of a variable equals the
Use the fact that the growth rate of a variable equals the time derivative of its log to show: (a) The growth rate of the product of two variables equals the sum of their growth rates. That is, if Z(t...
See Answer
