Advanced Macroeconomics 2
Autumn 2008

Corrections and clarifications to midterm paper problem

08.10.2008    Page 2, line 6: "population  = labor supply" should read "population, Lt = labor supply".
 

15.10.2008    Concerning 1c): After some raised questions I admit that I have used the term "capital structure" in an ambiguous way.  Therefore, on Page 2 replace

"Firms prefer a capital structure where a fraction, sf, is equity and the remaining fraction, 1-sf, is debt (bonds)."

by

"Firm managers prefer a payout structure where a fraction, sf, is to equity and the remaining fraction, 1-sf, is to debt (bonds). Footnote: That is, out of each unit of expected operating profit managers are unwilling to commit more than 1-sf  to bond owners. This is to reduce the risk of missing bond payments in case of a bad market outcome."

16.10.2008    A refresher on linear diff. eq's: Short Note 3.