Consider a two-period small open economy populated by households and firms with a single good each period. = The preferences of the representative household are described by the utility function u(c₁c₂): (C₁C₂)² where c₁ and c₂ denote consumption in periods 1 and 2, respectively. In period 1, the household receives an endowment of q₁ = 1. In period 2, the household receives profits, denoted by ₂, from the firms it owns. In period 1, the household has access to financial markets where they can borrow or lend at the interest rate r = 10%. The household has a zero asset holding position in period 1. Let the budget constraint in the first period be c₁ + bh =q₁, with b denoting assets purchased in the first period. Firms borrow in period 1 from the international financial market to invest in physical capital and to produce final goods in period 2. Denote by d₁ the amount of debt taken by the firm in period 1. The production technology in period 2 is given by Q₂ = 410.5, where Q₂ and 1₁ denote output in period 2 and investment in period 1, respectively.

Consider a two-period small open economy populated by households and firms with a single good each period. = The preferences of the representative household are described by the utility function u(c₁c₂): (C₁C₂)² where c₁ and c₂ denote consumption in periods 1 and 2, respectively. In period 1, the household receives an endowment of q₁ = 1. In period 2, the household receives profits, denoted by ₂, from the firms it owns. In period 1, the household has access to financial markets where they can borrow or lend at the interest rate r = 10%. The household has a zero asset holding position in period 1. Let the budget constraint in the first period be c₁ + bh =q₁, with b denoting assets purchased in the first period. Firms borrow in period 1 from the international financial market to invest in physical capital and to produce final goods in period 2. Denote by d₁ the amount of debt taken by the firm in period 1. The production technology in period 2 is given by Q₂ = 410.5, where Q₂ and 1₁ denote output in period 2 and investment in period 1, respectively.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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