Year: 1991
Paper: 1
Question Number: 7
Course: LFM Pure
Section: Differentiation
No solution available for this problem.
Difficulty Rating: 1516.0
Difficulty Comparisons: 1
Banger Rating: 1484.0
Banger Comparisons: 1
According to the Institute of Economic Modelling Sciences, the Slakan
economy has alternate years of growth and decline, as in the following
model. The number $V$ of vloskan (the unit of currency) in the Slakan
Treasury is assumed to behave as a continuous variable, as follows.
In a year of growth it increases continuously at an annual rate $aV_{0}\left(1+(V/V_{0})\right)^{2}.$
During a year of decline, as long as there is still money in the Treasury,
the amount decreases continuously at an annual rate $bV_{0}\left(1+(V/V_{0})\right)^{2};$
but if $V$ becomes zero, it remains zero until the end of the year.
Here $a,b$ and $V_{0}$ are positive constants. A year of growth
has just begun and there are $k_{0}V_{0}$ vloskan in the Treasury,
where $0\leqslant k_{0} < a^{-1}-1$. Explain the significance of these
inequalities for the model to be remotely sensible.
If $k_{0}$ is as above and at the end of one year there are $k_{1}V_{0}$
vloskan in the Treasury, where $k_{1} > 0$, find the condition involving
$b$ which $k_{1}$ must satisfy so that there will be some vloskan
left after a further year. Under what condition (involving $a,b$
and $k_{0}$) does the model predict that unlimited growth will take
place in the third year (but not before)?