Questions and answers of relevance for the exam June 4, 2015
Course: Economic Growth

General remark: From what I write below nothing can be inferred about the particular contents of the exam assignments. My answers are written from the perspective of the matter in principle.   

Questions received and my answers

Q1. In LN 9, § 9.3.2, you write something about the actuarial interest rate and refers to a life annuity market. What is the relevance of this to the present model where people work until death?
Reply: First of all, although life annuities are in practice often purchased to provide an income during retirement, in principle they have nothing to do with retirement. For a person with positive financial wealth and no bequest motive they are of interest because they "imply a transfer of income from after time of death to before time of death by offering a higher rate of return than risk-free bonds, but only until the depositor dies. At that time the total deposit is automatically transferred to the insurance company in return for the high annuity payouts while the depositor was alive."
    Now, the motivation for introducing the perfect credit and life annuity market is that the model has to say something about how studying is financed. Given private financing, the assumption of a perfect credit and life annuity market is the simplest approach. And it gives rise to a straightforward no-arbitrage condition, see the bottom of page 150 and top of page 151. 
    Additional remark: If students do not have access to a perfect credit and life annuity market, their borrowing costs - and thereby the effective discount rate in (9.18) - will exceed the sum of the risk-free interest rate and the mortality rate, if there is neither public nor parental help with financing the costs of living while studying.
 
Q2. Isn't there an error in LN 10, p. 169, line 11 from below?
Reply: Yes, thank you:    "is impossible for any"    should read    "for some". This is now also corrected here.

Q3. In LN 12, p. 191, line 3, you refer to assumption (A1) - where do I find it? In Chapter 10?
Reply: You find it in LN 12 at p. 190, line 2. You should always expect to find assumptions labeled this way (as A1, A2, ...) in the same chapter and usually earlier in the chapter.

Q4. In LN 13, p. 220, line 10 and footnote 10, there is referred to Eq. (16.29). Isn't that a typo?
Reply: Yes, it should be (13.15). This is now also corrected here. 

No more questions received before deadline.
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