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Tutorial Questions (Business Cycles)

ECON 6002

1. Consider the special case of the RBC model of Section 5.5 of the Romer textbook (δ = 1 and you can ignore population growth, as seen in class). Suppose, however, that the instantaneous utility function is given by 

(a) Write out the analytical expressions for the equilibrium wage in the labour market, the Euler equation, and the first-order condition for ℓt .

(b) With this change in the model, is the saving rate still constant? If yes, solve for ˆs. If not, explain why.

(c) Is leisure per person (1 − ℓ) still constant? If yes, solve for it. If not, explain why.