# data[].attributes.body
For Question 1c, can you write the equity value of the bank balance sheet (when the bank holds long assets to maturity) as: Rx+1-x-c1>0, instead of writing (c2-c1)(1-lambda)?

# data[].attributes.body
Can you explain why when p2 decreases this in turn increase the cost of investing in land, p1-b/R. I understand that when p2 decreases p1 will also decrease. But if p1 decrease, should the cost of investing also decrease? Similarly, on lecture slide page 17, can you explain why the negative shock also lead to a rise in the value of downpayment?

# data[].attributes.body
I understand that mathematically from the FOC, c1<c2. However, I don't understand the highlighted explanation for why this is intuitively the case. Please could you explain why the consumption of each impatient consumer will be less than that for each patient consumer?

# data[].attributes.body
Hi, apologies if it has already been posted but I can't seem to find the solutions for the MT part of the 2019-20 exam paper. Please could you post these on Moodle?

# data[].attributes.body
Please can you confirm whether we need to know how to derive the prices Q1 and Q2? Or do we just need an intuitive understanding?

# data[].attributes.body
The slide says 'The demand of capital from the firm is (K-delta)^a.' Is it a type? Why is the demand of capital not K-delta?

# data[].attributes.body
In part 3b, i understand that individual firm is not able to influence the total output in the economy, but I'm still confused why the firm revenue is just equal to the aggregate demand Y? If there are many individual firms in the markets, why the revenue for each firm is not Y/n?

# data[].attributes.body
Whenever we solve the farmer's optimisation problem, can we always use the formula that says: total investment, kF = (wealth * savings rate)/(cost - borrowing capacity)? Do we need to explain the intuition behind the formula when we use it?

# data[].attributes.body
I dont understand why a=1 in lecture 3. this means that the household sells their asset then buys it back, what is the point in doing this, why don't they just keep the asset in the first place, the outcome is the same? 

# data[].attributes.body
1) In part 3a, to work out TFP, we used Y=(y1*y2)^(1/2)=(A1*A2*k1*k2)^(1/2). Can we assume more generally in the course that the firm's production function is always yi=Ai*ki? (The solution to part 2a also assumed that this was the production function, even though it wasn't mentioned in the question). Is this because the economy's production function is Y=AK, so we assume the representative firm also has this production function?

2) In part 3b, when we solve the optimisation problem for the intermediary good producer, we never replace Y with (A1*A2*k1*k2)^(1/2). Why is this? The solutions say that Y doesn't depend on capital demand but if you substitute Y=(y1*y2)^(1/2)=(A1*A2*k1*k2)^(1/2), then it seems that Y does depend on k1 and k2. I understand the explanation that you gave about individual firms not being able to influence the total output in the economy (because there are so many firms), but in terms of the algebra, I'm not sure how to know when to stop substituting expressions.

3) In part 3b, I can't understand why the following is true: for R>0, net demand for capital is k1+k2-K=-K. Please could you explain this?

# data[].attributes.body
In the revision class in week 10 you mentioned that you would send around a document summarising the common mistakes made in the problem sets - please could you make this available?

# data[].attributes.body
During the lecture you added a summary table to explain how the social planner is effectively transferring resources between agents. I didn't fully understand this - could you please add an explanation to the lecture notes?

# data[].attributes.body
In equation (9), how do we prove that (A+p2)/p1>R? Or does it just hold because of the assumption that A is large enough?

# data[].attributes.body
I have updated my comments on your submissions. You should be able to see them now. Let me know if you haven't receive any comments.

Best,
Shengxing

# data[].attributes.body
Dear all,

I posted exercise 9. I set the submission deadline to be December 15 just in case you would like some feedback on your answer but need more time to work on the exercise.

I will go over the solution to exercise 9 on December 8. But if you need more time to finish the exercise before checking the solution and watching class recordings, please do so before December 15.

You can also work in groups and submit your answers together. In this case, just submit one copy of your answer.

I am sending you the class evaluation form and the lecture evaluation form (a second time). I would appreciate it if you could give me some feedback. That would help me further improve the course.

As usual, please feel free to reach out to me if you have any questions regarding the course.

Best,

Shengxing

# data[].attributes.body
for the case where e>ebar, why is the denominator 1-lambda-e instead of 1-lambda-ebar, since the number of withdrawals in t=1 is capped at ebar, and so the remaining population should be 1-lambda-ebar

# data[].attributes.body
Q1b)
when calculating the price of security 2, Q2, why are there λ/(1 − λ) units of security 2 that pays other patient consumers? where does the λ/(1 − λ) units come from?

# data[].attributes.body
Why do we divide by (1-lambda) to get the share per consumer of Rx?

If Rx = 10 (for example), and 1-lambda = 0.5, then Rx/(1-lambda) = 10/0.5 = 20, implies each consumer gets a payout of 20, which is impossible given Rx=10.

# data[].attributes.body
In slide4, a wedge between investor's return and market return so what is market return?

# data[].attributes.body
How can the point (c1, c2) = (0,R) be on the feasible set under autarky, when you showed that y=0 we get (1,R) and when y=1 we get (1,1), the point c1=0 does not feature anywhere- also if c1=y+rx => y+x (as r=1 assumption), then c1 = y+x, how can this be 0?

# data[].attributes.body
Why is borrowing in period 1 budget constraint b/R, but in period 2 budget constraint borrowing is just b? I understand that 1/R is the price, but why don't we include the price in period 2?

# data[].attributes.body
Could you help to explain why the net supply of long assets in the asset market is lambda if p>1? On the same vein, this means that net demand of long assets if p>1 should be 1-lambda right? since all resources for patient type will be devoted to buying long assets

# data[].attributes.body
Why is total supply of long assets 0 when p<1? Intuitively the supply would be 0 if p< r because then the liquidation value is less than market value. p<1 could still satisfy r<p<1 and so there would be a positive supply of the long asset from impatient consumers if p<1, but this is not what we have in the notes.

# data[].attributes.body
Dear Professor, it's the Christmas holiday coming up and I plan on making notes on this section of the course (mostly build from the full notes you upload), and referencing how problem sets have investigated the content. Do you think there's anything which should be done above and beyond this to ensure the best understanding

# data[].attributes.body
In Slide 13,  for the liquid equilibrium, if  λ is greater than  λ*, then owners of high value land will hold their land and do not trade on market, if that's the case, why the expected value of lands is not just  λµvL(because no high value lands on the market) but λµvL + (1 − λ)vH  instead?

# data[].attributes.headline
Discount factor for borrowing constraint

# data[].attributes.subject
Discount factor for borrowing constraint

# data[].attributes.body
In homework 6, the question says the borrowing constraint is (theta p2 k)/R, but in lecture note 6 page 7, the borrowing constraints for farmer and gatherer are not discounted by R. Is it necessary to add R in the borrowing constraint? Or after we calculated the gatherer's optimization problem, we got R=1, so we can convert all R into 1?

# data[].attributes.body
Could you explain more details about why the shocks like decrease in P2 or theta can increase cost of investing in land, and decrease leverage, which further decrease the asset demand from financially constrained farmer?

# data[].attributes.body
i think the c1F term in the budget constraint of the farmer is missing

# data[].attributes.body
In page 4, why the wedge depends on the credit constraint? Could you go through why (A-b_bar)/(x-b_bar) - 1 = (A-x)/(x-b)?

# data[].attributes.body
In page 2, it says ' when the constraint is  binding, agent i would like to further decrease consumption in event s to finance consumption in period 1 or other events'. Why does agent i decrease consumption when binding?

# data[].attributes.body
In the lecture, you mentioned that (A-b bar)/(x-b bar) is larger than A/x, could you please explain why this is the case?

# data[].attributes.body
in the equation of the expected return for agent I, do we assume that the insurance pays 1 at event 2?

# data[].attributes.body
Why y(s) is the payoff of an asset at state s and also is the number of unit of the asset?

# data[].attributes.body
When we maximize the function with respect to c2, why the 'sum' disappeared?

# data[].attributes.body
In page 5, just above equation 4, why is the expected value function gone for the period 2 maximization? My intuition would be that by making S+1 problems, the period 2 problems have a "fixed" value of c_2^i(s) and thus its treated as a constant inside the expected value. Would this be correct?

# data[].attributes.body
Please could you explain how the values on the y-axis correspond to the price of a safe asset under consumption plans A and B? I thought q0 = E1 M(s) = beta *(1/u'(e1)) * E1 u'(e2(s)+1)

# data[].attributes.body
Could you please go through under the approximation how we get u'(c) from the second order Taylor approximation of u(c)?

# data[].attributes.body
At the end of this page, why the equation (1) implies the risk-free rate satisfies that equation?

# data[].attributes.body
For the situation that q(y) < sum of qsy(s), this means the price of the risky asset is less than the price of a portfolio of insurance contracts. Is that a typo on the lecture note saying we should purchase the portfolio and sell the asset? Because when we buy the risky asset, we have negative cash flow -q(y), and we sell the portfolio, we have positive cash flow +sum q(s)y(s), then we can make a overall risk-free profit of: sum q(s)y(s) - q(y).

# data[].attributes.body
Hedging is described as taking an offsetting position in a related security. Couldn't this also be interpreted as short selling an asset?

Then, Arbitrage is defined as short selling an asset to "face adverse exposures".

Then, how are hedging and arbitrage different?

# data[].attributes.body
In period 2 why do you not include the value of the assets (not just their payoff) in the budget constraint?

# data[].attributes.body
Problem set 3 q 2)

Why does the second part of the question leave the solution with Ey, when we have that Ey = 1 (because the question states we are continuing from the environment of the first question)

# data[].attributes.body
The lecture notes say: "TFPQ is not directly observable in the data because we do not directly observe the quantity of output, Yi . What we observe in the data is the revenue from sales, piYi for firm i." Why can we observe piYi, but not Yi?

# data[].attributes.body
I dont understand why a=1 in lecture 3. this means that the household sells their asset then buys it back, what is the point in doing this, why don't they just keep the asset in the first place, the outcome is the same?

# data[].attributes.body
How do we derive the rental rate? I dont understand why we need to equate (18) and (14).

# data[].attributes.body
Why does the consumption good producer not use any capital to combine the intermediate goods into the final consumption good?

# data[].attributes.headline
Hsieh and Klenow (2009) Section 2 Page 1047

# data[].attributes.subject
Hsieh and Klenow (2009) Section 2 Page 1047

# data[].attributes.body
In the paper, they denoted the distortion that raise MPK (Marginal Product of Capital) relative to MPN (Marginal Product of Labour) as the capital distortion tao_k, may I know the intuition behind this? Also, in section 4 page 1415, they mentioned that presence of capital distortion is indicated by hight ratio of labor compensation to capital stock, why is this the case? Are we simply assuming that MPN is constant so any change in the relative raio is due to capital distortion?

# data[].attributes.body
Is tao1=tao2=/=0 considered efficient? (equal market distortions)

# data[].attributes.body
In the models in week 1 and 2, do households receive RK because we are assuming household rent out capital to firm?
If that's not the case, can you explain why they receive RK?

# data[].attributes.body
For the last paragraph, could you go through why a 25% wedge can lead to firm 1 to face a 50% higher rental rate than firm 2 and a loss of 10% aggregate productivity?

# data[].attributes.body
What does the axis represent on the distribution graph for India, China and US? Could you give more explanations about how to read the graph?

# data[].attributes.body
1.3 Socially optimum capital allocation. Could you provide the detailed derivation that how to get w1/w2 from the first order condition?

# data[].attributes.headline
How can we derive capital demand equations in 3)a) of problem set 2? the f.o.c for profit doesn't exist, are there ad hoc methods?

# data[].attributes.subject
How can we derive capital demand equations in 3)a) of problem set 2? the f.o.c for profit doesn't exist, are there ad hoc methods?

# data[].attributes.body
Is it more appropriate to use the term MPR(marginal product of revenue) to describe d(piAiki)/dki rather than MPK?

# data[].attributes.headline
Optimum and Equilibrium allocation of resources

# data[].attributes.subject
Optimum and Equilibrium allocation of resources

# data[].attributes.body
On week 1 slide page 19, it says that tau1=tau2=0, then optimum allocation will be equal to equilibrium allocation. Do both taus have to be zero, or once tau1=tau2, then the condition can be satisfied?

# data[].attributes.headline
can you go through the derivation of equilibrium R? in lecture notes 2 you say it is derived from equation 14 and 18 but this simply tells us that R=R. 

# data[].attributes.subject
can you go through the derivation of equilibrium R? in lecture notes 2 you say it is derived from equation 14 and 18 but this simply tells us that R=R. 

# data[].attributes.body
Why the goods market clears when Y=pi1+pi2+T+RK, without pi0. Is it a typo? It also shows on lecture slides that household demand for consumption is pi1+pi2+T+RK

# data[].attributes.body
Why is there capital misallocation when A1 is not equal to A2

# data[].attributes.body
What's the difference between socially optimal allocation and equilibrium allocation in competitive market? Why the TFP of equilibrium allocation would be lower when there is different cost from accessing the capital market?

# data[].attributes.headline
Can you explain what is meant by elasticity of substitution in the TFP paper on India and China? specifically, what the values of sigma (3,5) they use represent. Thanks

# data[].attributes.subject
Can you explain what is meant by elasticity of substitution in the TFP paper on India and China? specifically, what the values of sigma (3,5) they use represent. Thanks

# data[].attributes.body
In the timetable of LSE for you, it says I am in class1, but the Moodle page shows I am in class 4, which means I only have zoom link for class 4 at 10 to 11 on Tuesday. Thus, which class should I join in? Is there any technical mistake on my timetable or Moodle that I can correct?

# data[].attributes.headline
How can firms make profits pi if they are price takers and we assume competitive markets? 

# data[].attributes.subject
How can firms make profits pi if they are price takers and we assume competitive markets? 

# data[].attributes.body
What does “a continuum of households” mean?
Does it mean that every household is small enough?

# data[].attributes.body
In the solutions it says Y doesn't depend on the allocation of capital. I am still confused about why this is the case. In your explanation in class you said that the representative firms 1 and 2 are so small that their output doesn't affect Y; at the same time, the solutions say that the market power of intermediary good producers is very large. How are both of these statements true? Also, in part 3a) we were able to substitute Y for (A1A2k1k2)^(1/2) so I'm still not sure why we can't do the same in this part of the question. Thanks in advance

# data[].attributes.headline
how/where/when do we hand in problem sets? 

# data[].attributes.subject
how/where/when do we hand in problem sets? 

# data[].attributes.headline
In Q1a) of the 2018/19 exam on TFP, why do we assume that the aggregate production function is Y=AK, where it is not stated in the question? Can you please go through this question

# data[].attributes.subject
In Q1a) of the 2018/19 exam on TFP, why do we assume that the aggregate production function is Y=AK, where it is not stated in the question? Can you please go through this question