Practice Problems

1. Find the solutions of the following difference equations with the given values of x0 :
a) xt 1  3xt  4, x0  1 .

b) 3xt 1  2 xt  1, x0  2 .

c) 3xt 1  4 xt  3  0, x0  1 .

d) xt 1  xt  6, x0  6 .

e) xt 1  7 xt  6, x0  1 .

f) 4 xt 1  7 xt  4  0, x0  1 .

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g) xt 1   xt  6, x0  0 .
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h) xt 1  2 xt  9, x0  4 .

2. Consider the following supply and demand equations:

Qs ,t  4 pt 1  10 ,

Qd ,t  5 pt  35

Assuming that the market is in equilibrium, find expressions for pt and Qt when p0  6 . Is
the system stable or unstable?

3. Consider the supply and demand equations

Qs ,t  pt 1  8 ,
Qd ,t  2 pt  22 .

Assuming equilibrium, find expressions for pt and Qt when p0  11 . Is the system stable or
unstable?
4. Consider a two-sector model:
i) Yt  Ct  I t ii) Yt  Ct  I t
Ct  0.8Yt 1  100 Ct  0.9Yt 1  250
I t  200 I t  350

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 Find an expression for Yt when
a) Y0  1700 b) Y0  6500 . Is the system stable or unstable?
5. Consider the two-sector model:

i) Yt  Ct  I t ii) Yt  Ct  I t
Ct  0.7Yt 1  400 Ct  0.6Yt 1  200
I t  0.1Yt 1  100 I t  0.2Yt 1  100

Given that Y0  3000 , find an expression for Yt . Is the system stable or unstable?
6. Solve the difference equation Yt 1  0.2Yt  0.8t  4

with the initial condition Y0  10 .

7. Consider the difference equation

Yt  0.1Yt 1  6  0.6  .
t

a) Find the solution of the corresponding homogeneous equations.

b) Find the particular solution using the substitution Yt  a  0.6  .
t

c) Find the general solution that satisfies the initial condition Y0  9 .

d) Is the general solution stable or unstable?

8. Consider the income determination model

Ct 1  200  0.75Yt ,
I t 1  50  0.15Yt ,
Y0  3000.

a) Find the time path of national income Yt

b) Check your answer, using t=0, t=1

c) Comment on the stability of the time path

9. The Harrod-Domar model of the growth of an economy is based on three assumptions:

a) Savings St in any time period is proportional to income Yt , so that St   Yt ,   0 .

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 b) Investment It in any time period is proportional to the change in income from the
previous period to the current period so that I t   Yt  Yt 1  ,   0 .

c) Investment and savings are equal in any period so that I t  St . Show that Yt  Y
   t 1
and find a formula for Yt in terms of Y0 . Consider the case when   0.1 . and   1.4 .
Discuss that stability and find expressions for Stand It in terms of Y0 .

10. a) Construct a phase diagram for the non linear first-order difference equation

xt 1  xt3 .

a) Use it to test for dynamic stability

b) Confirm your results with the derivative test

11. a) Construct a phase diagram for the non linear first-order difference equation

1
xt 1  .
4 x
t

b) Use it to test for dynamic stability

c) Confirm your results with the derivative test

12. a) Construct a phase diagram for the non linear first-order difference equation

1
xt 1  .
xt3

b) Use it to test for dynamic stability.

c) Confirm your results with the derivative test.

13. find the equilibrium points and determine their stability for the equation

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x(t  1)  5  .
x(t )
14. find the equilibrium points and determine their stability for the equation
a) x(t  1)   x(t ) 2  x(t ), t  0,1, ,

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b) x(t  1)  1  x(t ) 2 , t  0,1, ,
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