1. Characterize the solution for K2 as a function of , i.e. write the Euler Equation similar to the

one in Section 3.8 but as a function of instead of G.

2. You are charged with advising the government with the value of that maximizes government

spending. Describe step-by-step how you would derive the value of G1 as a function of .

3. Now you are asked for the value of that maximizes consumer welfare

u (C1 ( )) + log(G1 ( )) + u (C2 ( ))

Therefore, you need to derive C1 ( ) and C2 ( ). Describe step-by-step how you would derive these

values.

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