1. Write down the social planner's problem and its two optimality conditions in the Real Business...

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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. 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 the full answer