What are the properties of these policy functions

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1.Write down the necessary conditions for the optimal choices of hours and employment in (9.9). Provide an interpretation of these conditions.

2.There are a number of exercises to consider working from this simple model.

3. Write a program to solve (9.9) for the employment and hours policy functions using value function iteration. What are the properties of these policy functions? How do these functions change as you vary the elasticity of the compensation function and the cost of adjustment parameter?

4. Solve (9.9) using a log-linearization technique. Compare your results with those obtained by the value function iteration approach.

Reference no: EM131264037

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