Suppose in the Solow growth model that there is government spending financed by lump-sum taxes, with total
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Suppose in the 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*, and explain your results.
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The steady state capital per worker is given by K s n Y The steady state consumption per worker is C ...View the full answer
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