Reference no: EM131236632
Suppose that the production function that the rm operates is now given by
Y = z(G)F(K;N^d); with z(G) = ( z bar + aG);
where z > 0, a > 0, and G > 0 is government spending.
Notice that in this framework government spending makes firms more productive (for example, government expenditures on roads and bridges lowers the cost of transportation).
The budget constraint for the government is G = T, where T are lump-sum taxes.
1. Suppose that the government decides to increase G. Using a diagram, determine the equilibrium e acts of this shock on aggregate output, consumption, employment, and the real wage. Show that increasing G can potentially increase welfare.
2. Compare your results with the case of unproductive government spending studied in class (i.e., when a = 0).
Define internal rate of return
: Define Internal Rate of Return (IRR). What is the assumed Net Present Value in calculating IRR? Why is it not appropriate to compare today’s outflow of cash (cost of the project) directly to future cash inflows? If the Weighted Cost of Capital (WACC)..
|
Preferences are homothetic and convex
: Kevin’s utility function is U(x, y) = x a + y b , where a ≥ 0 and b ≥ 0. What additional restrictions on the values of the parameters a and b are imposed by each of the following assumptions? Kevin’s preferences are homothetic. Kevin’s preferences ar..
|
Describing precisely your procedure
: Alice’s preferences are represented by the utility function U(x, y) = x/ y if y > 0 and U(x, y) = 0 if y = 0. Draw a couple of her indifference curves, describing precisely your procedure, showing whether or not she • prefers more of each good to les..
|
The market outcome under bertrand competition
: There are two firms in an in an industry. Let q1 and q2 be the two firms in an industry and Q= q1 + q2 be the total output. The inverse demand in the industry if P (Q)= 45 – Q. The cost function for each firm is C(qi) = 9qi. The market outcome under ..
|
Determine equilibrium e acts of shock on aggregate output
: Suppose that the government decides to increase G. Using a diagram, determine the equilibrium e acts of this shock on aggregate output, consumption, employment, and the real wage. Show that increasing G can potentially increase welfare. Compare your ..
|
What happens to the equilibrium price and quantity of salsa
: Many consumers like to eat their salsa with tortilla chips. In economics, these products are often reffered to as complements. What happens to the equilibrium price and quantity of salsa if the price of tortilla chips increases? Why?
|
What are sellers trying to accomplish
: Supermarkets and retailers always have decor and whatnot for various holidays (Halloween, Christmas etc..) as soon as the holiday passes, see all these products severely marked down. How does economic theory explain this price drop? What are sellers ..
|
The circular flow model with government is another model
: The Circular Flow Model with Government is another important model for students to understand. Please explain what the model shows us. List and explain the assumptions of the model. i. There are 3 assumptions of the Circular Flow Model with Governmen..
|
Define it and explain how it relates to the ppc
: The Production Possibilities Model is one of the first Economic Models students learn about. Please explain what the mode teaches us. Please explain each of the 4 assumptions of the model. Please explain Productive Efficiency and how it relates to th..
|