Question: 1. Write down the social planner's problem and its two optimality conditions in the Real Business Cycle model with G > 0. 2. Describe

1. Write down the social planner's problem and its two optimality conditions in the Real Business Cycle model with G > 0. 2. Describe the planner's Pareto optimal allocation on the consumption-leisure plane. On the same graph, describe a competitive equilibrium when the government finances G imposing lump sum tax T. Compare the Pareto optimal allocation and a competitive equilibrium. Interpret what you observe. 3. The government finances G using a labor income tax T instead of the lump sum tax. Describe a new competitive equilibrium on the consumption-leisure plane. Do you observe the same relationship bet ween the Pareto optimal allocation and a new competitive equilibrium as above? Explain the implication of the new observation.

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The social planners problem in the Real Business Cycle RBC model with G 0 is to maximize social welfare which is represented by the utility of consumption and leisure for all individuals in the econom... View full answer

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