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Stoe-Geary preferences and Ramsey economy Consider the standard Ramsey model of a closed economy, except that the representative house- hold's instantaneous utility function felicity function

Stoe-Geary preferences and Ramsey economy] Consider the standard Ramsey model of a closed economy, except that the representative house- hold's instantaneous utility function (felicity function) takes on the following Stone-Geary form, so that preferences are no n-homothetic u(c) 1-6 where c0 represents the subsistence level of per capita consumption. Suppose that the production function has the Cobb-Douglas form, and assume that there's no technological progress a. What is the intertemporal elasticity of substitution for the new form of the felicity function? Hint: Intertemporal elasticity of substitution, o, is cx u"(c) If >0, show how this elasticity measure changes as c rises.

Apr 05 2020 View more View Less

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