Determine the optimal fraction of output purchased by govt

Reference no: EM13181188

In the Macroeconomics book by Stephen Williamson (5th Edition) in the Appendix for Ch. 7-8 Problem 1 the problem asks: Suppose in Solow growth model that there is government spending financed by lump-sum taxes, with total government spending G=gY, where 0<g<1. Solve for steady state capital per worker, consumption per worker, and output per worker, and determine how each depends on g. Can g be set so as to maximize steady state consumption per worker? If so, determine the optimal fraction of output purchased by the government, g*

Reference no: EM13181188

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