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Suppose that there is a credit market imperfection due to asymmetric information. In the economy, a fraction b of consumers consists of lenders, who each receive an endowment of y units of the consumption good in the current period, and 0 units in the future period. A fraction (1 - b)a consumers are good borrowers who each receive an endowment of 0 units in the current period and y units in the future period. Finally, a fraction (1-b)(1-a) of consumers are bad borrowers who receive 0 units of endowment in the current and future periods. Banks cannot distinguish between good and bad borrowers. The government sets G = G' = 0, and each consumer is asked to pay a lump-sum tax of t in the current period and t' in the future period. The government also cannot distinguish between good and bad borrowers, but as with banks can observe endowments.
(a) Write down the government's budget constraint, making sure to take account of who is able to pay their taxes and who does not.
(b) Suppose that the government decreases t and increases t' in such a way that the government budget constraint holds. Does this have any effect on each consumer's decisions about how much to consume in each period and how much to save? Show with the aid of diagrams.
(c) Does Ricardian equivalence hold in this economy? Explain why or why not.
Characterize the steady-state equilibrium and the transitional dynamics. How do the implications of this model differ from those of the baseline neoclassical model?
Imagine a simple economy with only two people, Leroy and Percy. If the Social Welfare Function is W = UL + UP, and the Utility Possibilities Frontier is UPF = UL + 2UP, what will be the societal optimum
Monopoly manager has the demand and cost functiones as P=200-2Q and C(q)=2000+3Q2 1- calculate the maximum profits 2- what price-quantity combination maximizes the profits 3- at the profit-maximizing price-quantity combination, what is the demand ela..
When the price of good X falls from . 10 to . 9, the demand for good Y Increase from 20 Kg. to 25 Kg. a) What is the cross elasticity of demand of good Y for good X b) Are goods X and Y compliments or substitutes
If the growth rate of real GDP were to continue at the same rate you have calculated, how many years would it take for real GDP to double Assume the population in 2009 was 100 and 200 in 2010. Calculate real GDP per capita in each of these years.
graph the relationship between output and labor, holding capital constant at its current value. Find the MPN for an increase of labor from 100 to 110. Compare this result with the MPN for an increase in labor from 110 to 120. Does the marginal pro..
What problems might you envision occurring if no smoking is allowed unless all the nonsmokers agree to allow it?
Summarize the arguments for and against the role and impact of private foreign investment in less developed countries. What strategies might developing countries adopt to make private foreign investment fit their development aspirations better wit..
He returns to Earth with the giant and puts it in a cage. By dimensional analysis, describe what happens to the giant ant.
What is the Nash equilibrium to this game?
Consider the following sets of investment projects, each of which has a three-year investment life: Period Project Cash Flow n A B C D 0 -5,000 -2,000 4,500 -3,500 1 5,800 -4,400 -6,000 1,000 2 12,400 7,000 2,000 5,0003 8,200 3,000 4,000 6,000
What is the company's average monthly demand for microwaves? Assume the standard deviation of demand is 24.0 microwaves and the company wants to be in stock at least 95% of the time.
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