Question 1: In each state, how many stable steady states are there?.Question 2: In each state, which points are stable steady states? :Question 3: Explain each state.State (a): Two stable steady-statesState (b): Fragile economic booms followed by stagnation trapEven in this case, economy may fluctuate forever.kMkkekkState (c): Economy can bounce around infinitely between k' andk" without converging.State (d): Animal spirits play an important role when economicactivity is stagnant.K+14k+14 State (c): Economy can bounce around infinitely between k' andk" without converging.State (d): Animal spirits play an important role when economicactivity is stagnant.kM.kkkQuestion 4: Consider the function N(k+1) = "*1, where s, = s(r:+1) = s(r(k+1)).StDifferentiate the function N(k+1) with respect with k+1, and express the result usingdlog(st)dlog(1+rt+1)-anddlog(1+rt+1)dlog(kt+1)

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Question 1: In each state, how many stable steady states are there?

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Question

State (c): Economy can bounce around infinitely between k' and
k" without converging.
State (d): Animal spirits play an important role when economic
activity is stagnant.
kM.
k
k
k
Question 4: Consider the function N(k+1) = "*1, where s, = s(r:+1) = s(r(k+1)).
St
Differentiate the function N(k+1) with respect with k+1, and express the result using
dlog(st)
dlog(1+rt+1)
-and
dlog(1+rt+1)
dlog(kt+1)

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