Please help me on these questions and there is a minimum requirement of 70% correction rate.

Feel free to do if you are an expert on this subject. A tip will be provided if well graded.1 attachmentsSlide 1 of 1

  • attachment_1attachment_1

UNFORMATTED ATTACHMENT PREVIEW

ECON 411.3 (01): Monetary Theory T2: 2020/21 Assignment 2 due on February 25 th Question 1: Money in a Production Economy The evolution of the per-capita capital stock in an OLG production economy is given by kt+1 = σn f(kt ), where f(kt ) = kαt . Assume that n = 2, α = 13 and σ = 12 . The depreciation rate of capital is δ = 13 . a) Find the steady-state value k of the capital stock for the economy without money. b) What is the return R on capital? c) Is the economy dynamically efficient? Now the government introduces money. The gross rate of money supply growth z is chosen such v that the return on money in a stationary equilibrium is t+1 = nz = 2 34 . vt d) What will the return on capital, R, be after money has been introduced? e) What is the new steady-state capital stock? f) Given that the young cohort’s saving is still the same share σ = 12 of per-capita output as before, what are the real balances vM held by the young cohort in per-capita terms? N g) How much seignorage does the government earn (again, in per-capita terms of the young cohort)? h) Bonus (15%): We represented the non-monetary equilibrium of this economy graphically. Can you determine the monetary equilibrium graphically? Where do real balances appear in your figure? Question 2: Asset Pricing Consider the consumption problem of an individual that lives for two periods. She has two available means of saving. She can either buy a totally riskless bond for a price of one per unit that pays a gross real return R next period. Or she can buy tomato plants at a price of pT (relative to the consumption good) each. Tomato plants yield a risky (i.e. stochastic) return of Q in the following period. The individual’s expected utility is given by u(cy ) + βE [u(co )]. Her period budget constraints are cy = y y − aB − pT aT and co = y o + RaB + QaT , where aB and aT are, respectively, the number of bonds and tomato plants bought. a) Solve the saving problem. Show that the first-order conditions imply that u′ (cy ) = RβE [u′ (co )] and u′ (cy ) = p1T βE [Qu′ (co )]. Now assume that the period utility function is u(c) = ln c and that the gross return on the riskless bond is R = 1. In the second period, the weather can either be good or bad. Each outcome is equally likely. If the weather is good, consumption is high, co = 1 , and the return on tomato plants is good, Q = 1 . If the weather is bad, consumption is lower, co = 0.5 and the tomato plants carry no fruit, i.e. Q = 0 . E[Qu′ (co )] b) Use your results from part a) to show that pT = RE[u′ (co )] . c) Compute the expected values based on the information provided and show that pT = 13 . Q d) The expected return on tomato plants can be written as E[ pT ]. Calculate this value. What is the risk premium associated with growing tomatoes? -1-
Purchase answer to see full attachment

Do you similar assignment and would want someone to complete it for you? Click on the ORDER NOW option to get instant services at essayloop.com