Consider an economy that lasts for two periods populated by a representative consumer/worker, a representative firm, and a government. After these two periods, the economy ends.
The question asks me to - Define a competitive equilibrium for this economy. - Show the demand and supply curve in a diagram with variables (r, Y ). - Show the effect of an increase in the current capital stock K. - Compare the equilibrium path with the case in which workers have a preference shock that reduces the disutility from work h − l in period one. Preferences are back to normal in period 2.
My Problems I am so confused: what are the steps to defining a competitive equilibrium? Do I just rewrite what competitive equilibrium is from the lecture notes, or do I have to define one from the problem above?
Also, there are a lot of variables with no numbers. I am very confused to how to approach a question with no numbers.