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Assignment II

This document provides the details for Assignment II that is due on December 23, 2022 for the economics course Econ 907 at Addis Ababa University. The assignment is worth 20 points and consists of 5 questions. Students are instructed to show their work, write legibly, and avoid plagiarism. The questions cover topics like solving systems of linear differential equations, modeling firm production and hiring, developing models of national income and investment, and analyzing dynamical systems using bifurcation diagrams.

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45 views

Assignment II

This document provides the details for Assignment II that is due on December 23, 2022 for the economics course Econ 907 at Addis Ababa University. The assignment is worth 20 points and consists of 5 questions. Students are instructed to show their work, write legibly, and avoid plagiarism. The questions cover topics like solving systems of linear differential equations, modeling firm production and hiring, developing models of national income and investment, and analyzing dynamical systems using bifurcation diagrams.

Uploaded by

Belaynew
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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9 December 2022

Addis Ababa University


Department of Economics
Econ 907: Assignment II
Due Date: Friday 23 December 2022
This assignment carries 20 points (20% of the total score). If you are submitting hand-
written answers, please write legibly, if not, illegible answers will not be marked. Attempt
all the questions and make your answers to the point. Plagiarism is a serious academic
o¤ence which may result in nulli…cation of your scores.

1). Consider the following linear di¤erential equation system:

y_ 1 = 2y1 9y2 + 35

y_ 2 = 3y1 4y2 + 70

a). Solve the above system of linear di¤erential equations. (1 Point)

b). Draw the phase diagram. (1 Point)

c). Find the equation for the saddle path. (1 Point)

d). If y1 (0) = 0; what value must be chosen for y2 (0) to ensure that the system con-
verges to the steady state? (1 Point)

2). A …rm’s production function depends only on labour, L: output equals (L aL2 ). The
…rm pays a …xed wage, w; per unit of employed labour and incurs hiring costs equal
to qH 2 ; where H is the amount of new hire and receives a constant price , p, per unit
of output. The …rm’s labour force has a constant quit rate equal to . Solve for the
path of hiring that solves:
Z T
t
max e p L aL2 wL qH 2 dt
0
subject to L_ = H L (4 Points)

L (0) = L0

1
3). Consider the following multiplier-accelerator model of an economy. Let aggregate na-
tional income, Y , be equal to
Yt = Ct + It + Gt

where C, I, and G are consumption, investment, and government expenditure, respec-


tively. Assume that government expenditure is constant at G. However, assume that
consumption is given by
Ct = mYt

where 0 < m < 1 is the marginal propensity to consume. In addition assume that
investment is a fraction of the growth of national income in the previous year

It = (Yt 1 Yt 2 )

a). Derive the second order di¤erence equation for the national income implied by this
model. (1 point)

b). Solve the derived di¤erence equation. (2 points)

c). Determine what restrictions on the parameters of the model must be made to en-
sure convergence. (1 point)

4). Consider the problem of maximizing


X
T
max (3 ut ) x2t ;
ut 2[0;1]
t=0

subject to the the constraints

xt=1 = ut xt ; t = 0; 1; : : : ; T 1; x0 is given

a). Compute the value functions JT (x) ; JT 1 (x) ; JT 2 (x). (2 Point)

b). Find the corresponding optimal control functions uT (x) ; uT 1 (x) ; uT 2 (x).
(2 Point)

2
5). Consider the following equation:

x
x_ = 4x
1 + 4x2

a). Construct a bifurcation diagram for the above equation. (2 Points)

b). What type of bifurcation results? (2 Points)

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