Apologies for the delay in posting this problem set, I've changed the due date to compensate.
This problem set is worth 10% of your final mark. All questions carry equal marks, and the date for submission is Friday, March 6th, to the departmental office, KB 3-22a, by 4pm. Work in groups, but submit alone.
Email me if you've questions on the problem set. It is a mix of theoretical, data work, and applied policy analysis, exactly the stuff we want you to learn in this course.
Update: Some sensible emails suggest I help you prepare for these questions a bit more, in order that I not break the class :), so here are some hints.
For question 2, read the notes, and work through to the final equation with the term included, then just see what happens to things when goes up.
For question 3, plug values of 1, 2, 3, 4, etc, into and , and graph it. You'll find interesting equilibrium values. Helpful notes on the maths are here, here, and here. I'm not looking for an algebraic solution though, just the graph will do.
For question 4, use your data skills from the trading floor and the notes from lecture 2.
For question 5, read the paper, tell me what you think.
I'll be on hand by email at any time to answer questions about the problem sets. Promise.