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November 7th, 2012, 08:40 AM   #1
Joined: Nov 2012

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Macroeconomics 3 - need help with an excercise

1 Problem sets 2 and 3
1. Imagine a Ramsey type of model, where we introduce a human capital
into the model. The production function is given by:
Yt = K K
t H H
t ;
where K < 1; H < 1; and K + H < 1: The laws of motion for the two
types of capital are:
Kt+1 = Kt(1 .. K) + IK;t;
Ht+1 = Ht(1 .. H) + IH;t:
The remainder of the setup is the same as during your lectures. The
economy is closed, so the aggregate resource constraint is:
Yt = Ct + IH;t + IK;t
a. Write the Bellman equation and determine the Euler equation! Com-
ment on both!
b. Determine the steady state of this economy!
c. What does it depend on and how?

Best regards
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