Consider a small open economy where there is the accumulation of capital and production. Production...
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Consider a small open economy where there is the accumulation of capital and production. Production is given by means of function: Y = AKO There is total depreciation of capital such that 8 = 1, and 19 = Ke+1, and Ki is fixed and given. Let B, be the stock of foreign assets inherited from period t-1, and assume that B = B3 = 0). The global interest rate is given by r = r. The utility function for the representative consumer is given by U = log C+ Blog C2 1. Determine the optimal level of capital in the second period, K2. 2. Show that investment, 11, is a negative function of interest rates, 3. Solve for : 4. Solve for C. Consider a small open economy where there is the accumulation of capital and production. Production is given by means of function: Y = AKO There is total depreciation of capital such that 8 = 1, and 19 = Ke+1, and Ki is fixed and given. Let B, be the stock of foreign assets inherited from period t-1, and assume that B = B3 = 0). The global interest rate is given by r = r. The utility function for the representative consumer is given by U = log C+ Blog C2 1. Determine the optimal level of capital in the second period, K2. 2. Show that investment, 11, is a negative function of interest rates, 3. Solve for : 4. Solve for C
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