Consider the economy with capital and private debt but without money studied in class. Assume the endowment vectors are (y, 0) for lenders and (0,y) for borrowers. Suppose the production function is f(k)= √k and u(c₁, c₂) = ln c₁ + ln c₂. a. Find the equilibrium gross interest rate r*. (Remember that r > 0. Note that you may obtain more than one value of r*. Hint: use the fact that one of the roots of the equation you will be solving is r = 1.) b. Find the value(s) of k*. c. Find the values of consumption in both periods for borrowers and lenders?

Consider the economy with capital and private debt but without money studied in class. Assume the endowment vectors are (y, 0) for lenders and (0,y) for borrowers. Suppose the production function is f(k)= √k and u(c₁, c₂) = ln c₁ + ln c₂. a. Find the equilibrium gross interest rate r. (Remember that r > 0. Note that you may obtain more than one value of r. Hint: use the fact that one of the roots of the equation you will be solving is r = 1.) b. Find the value(s) of k*. c. Find the values of consumption in both periods for borrowers and lenders?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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