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Consider the Solow growth model as described in the preceding exercise and include government spending. The government purchases G = Lg units of consumption good in the current period with g a positive constant. The government finances its public purchases with a lump-sum tax on consumers, where T = G denotes the balanced budget total taxes. Suppose that consumers spend a fraction 1 - s of their disposable income where 0
a. Show in a diagram how the capital-labor ratio is determined and what its value is in a steady state.
b. How many steady states are possible?
c. Concentrate on the steady state with the highest capital-labor ratio. What is the impact of an increase in public spending per worker g on the capital-labor ratio and output per worker in the steady state? What are the effects on aggregate output, consumption, and investment? What is the effect on the growth rate? Explain briefly.
What term would economists use to describe what happened in year 3 Expansion OR Recession If the growth rate in year 3 had been a positive 5 percent rather than a negative 2 percent, what would have been the average growth rate
A firm sandab has a production function x =f(h,k) =ln(h)+3ln(k), where x=pots of crabs caught, h=labor hours employed, and k= number of boats rented (all per week); k>1. San dab operates in perfectly competitive markets.
Suppose that the government seeks to raise savings and is considering expanding the Individual Retirement Accounts (IRAs) to do this. US evidence suggests that IRA holders save more than non-IRA holders.
Let L = length of a newborn child. The minimum probability that achild will be within 2 standard deviations of the average length is0.75. What is the above probability if L is normally distributed
Why do you think Alaska and New Hampshire chose to consider adopting an income tax rather than a sales tax as a way to increase state revenue? What strengths and weakness does each tax have for those states in terms of the criteria developed in th..
When writing about the Court, cite at least three cases that illustrate what the Court was thinking
According to the News on page 162 : Economy: Sharpest Decline in 26 Years The U.S. economy suffered its biggest slowdown in 26 years in the last three months of 2008, according to the government's first reading about the fourth quarter released Fr..
Suppose that the economy is thought to be 2% above potential (that is, the output gap is 2%) when potential output grows 4% per year. Suppose also that the Fed is following the Taylor rule, with an inflation rate of 2% over the past year.
Damaged goods and obsolete items have been properly accounted for.
Describe the role that networking can play in your professional life.
Suppose that the exchange rate between the Polish Zloty and the U.S. dollar is currently 4 Zls to the dollar. The one year forward rate for the Zloty is 4.5 Zls to the dollar
How many firms would be in the market at equilibrium in which every firm's economic profits are zero?
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