Economics 10b Study Guide - Final Guide: Federal Funds Rate, Utility, Federal Reserve System
13 Dec 2018
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Please use a separate blue book for each question and write the. Question number on the front of the blue book. Please put your exam number on each book. Please do not write your name on your blue books. Bertola and caballero (1990): consider a rm that faces a decision problem. Speci cally, the rm tries to maximize the net present value of instantaneous payo s. 2 where the discount rate is assume ( ) is described by. = + + (discrete adjustments undertaken by the rm). When ( ) reaches , the rm discretely raises ( ) jumping to ( ) = . Explain your reasoning with intuition: derive the continuous-time bellman equation in the continuation region (i. e. , for ( ) ), show that. 3 is the expected present value of the rm"s payo stream assuming that adjustment costs are in nite: explain why the general solution of the bellman equation is given by with roots.
