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November 7th, 2012, 08:40 AM  #1 
Newbie Joined: Nov 2012 Posts: 2 Thanks: 0  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 = KK t HH 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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