please help me... For all questions, if necessary, make appropriate assumptions.1. A unit price of consumption is normalized to one. Suppose the price of one-period risk-free bond inperiod t and t + 1 is, and the price of two-period risk-free bond in period t and t + 2 is.(a) Solve for the interest rate between t and t + 1 of this economy.(b) Solve for the price of one-period risk-free bond in period t+1 (that delivers one unit of consumptionin period t + 2).2. Consider an economy consists of two types of agents, Capitalists and Workers. Capitalists save inrisk-free asset and receive rental rates rt. Workers have no access to capital accumulation but endowwith labor lt € [0, 1] and earn wt per hour. Firms hire workers and borrow risk-free assets to purchasecapital for production. Both factor prices rt and we are competitively determined in factor markets sothat FK (kt, lt) = rt and FL (kt, lt) = wt. Utility maximization problems for each type are given by1Capitalist:Worker:max{Ct,kt+1}=0∞Σβαmax{Ct}t=0 t=0t=01-oCapitalist:Worker:s.t. at+1+Ct = (1 + rt) ats.t. Ct = Weltwith o = 1.(a) Solve for the optimal consumption and savings for Capitalists. What is the level of capital insteady-state?(b) Suppose the government imposes capital taxes Tt and use the revenue to make a lump-sum transferTt. Given Tt, the objective functions are identical, but the budget constraint of each type changessuch thatat+1+Ct = (1 - Tt) (1 + rt) atCt + Tt = Wt.Compute the steady-state equilibrium under capital taxes. Compare the results with your answerin part (a). How does capital tax affect the level of capital in steady-state?(c) Suppose the government values the welfare of Workers only. Define the Ramsey taxation problemand find the optimal capital taxes in the limit.(d) Suppose o> 1 instead. Does your answer change? Explain.

Price of one period bond = 3/4 (For period t and t+1 )Price of two period bond = 3/5 (For period…

For all questions, if necessary, make appropriate assumptions. 1. A unit price of consumption is normalized to one. Suppose the price of one-period risk-free bor period t and t + 1 is ¾, and the price of two-period risk-free bond in period t and t + 2 is 3/ . (a) Solve for the interest rate between t and t + 1 of this economy. (b) Solve for the price of one-period risk-free bond in period t+1 (that delivers one unit of consum] in period t + 2).

For all questions, if necessary, make appropriate assumptions. 1. A unit price of consumption is normalized to one. Suppose the price of one-period risk-free bor period t and t + 1 is ¾, and the price of two-period risk-free bond in period t and t + 2 is 3/ . (a) Solve for the interest rate between t and t + 1 of this economy. (b) Solve for the price of one-period risk-free bond in period t+1 (that delivers one unit of consum] in period t + 2).

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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