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

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
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Chapter1: Making Economics Decisions
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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-states
State (b): Fragile economic booms followed by stagnation trap
Even in this case, economy may fluctuate forever.
kM
k
ke
k
k
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.
K+14
k+14
Transcribed Image Text: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-states State (b): Fragile economic booms followed by stagnation trap Even in this case, economy may fluctuate forever. kM k ke k k 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. K+14 k+14
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)
Transcribed Image Text: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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