ECON 704 Midterm: pmacsp16_Rios_704
Document Summary
In the following there are 10 questions for 100 points. Be as brief as you can and good luck. Consider an economy with two regions indexed by i {m, b} (madeira and baleares). Each region is populated by a continuum of in nitely lived identical agents that is taken to be of measure one (this just means that there is a representative agent in each region). In region m there is a constant returns to scale technology given by f m (z, k m , nm ), where shocks follow a markov chain with transition m z ,z . Region b has a constant returns to scale technology given by f (k b , nb ) (no shocks). The only form of wealth is real capital. Preferences are given by the expected discounted value (both regions" agents have the same discount factor, ) of a region speci c strictly concave current utility function.
