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Find the public sector saving

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In a two-period economy, suppose that household's preferences are such that they choose c1 = 0.8c2. Household endowment income is given by Q1 = 400, Q2 = 165. Taxes are T1 = 80, T2 = 55 and government expenditures are given by G1 = 30 and G2 = x. The interest rate is 25%.

(a) Assume the government has no debt at the beginning of the first period. Setup the intertemporal government budget constraint and find the value of x (i.e. the government expenditures in the second period).

(b) Find the public sector saving, households' saving and total saving in each period.

Reference no: EM133115190

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