ECON482 Midterm: ECON 482 UofA E482A209
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This assignment will be marked out of 150. The maximum number of marks that can be earned on a question is given in brackets next to the question. Your answers should be concise and to the point. Suppose that a proportion (1- ) of firms, 0< <1, set their price every period knowing current period information. A proportion set their price every period knowing only information from the previous period. Let represent the price of the (1- ) proportion. 0 tp of firms that set their price knowing current period information while chosen by the proportion of firms which set price using t-1 information. Suppose that the optimal price in t for all firms is: is the price tp. Write an expression for the aggregate price, pt, as a function of. 1 tp and p t as functions of mt and expected mt. Find the equilibrium value of yt if yt = mt - pt.
