Consider an overlapping generations model with capital that produces 2k0.5 at +1 if a person creates...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Consider an overlapping generations model with capital that produces 2k0.5 at +1 if a person creates k, units of capital at t. Assume that there is a subsidy to production: government subsidizes the old person of 0.5 goods for each unit of output newly produced. (Hint: the subsidy is to new output, not to capital as in homework). Assume that the subsidy is paid for by a lump- sum tax of goods on each young person. Each agent lives for two periods and is endowed with w₁ units of the good when young and nothing when old. The preference of an agent is represented by the following utility: In(c₁) + 2ln(c₂) (1)(15') Find the new budget constraints of the individual. (2)(15) Assume that the endowment at young age w₁ is 10 and lump-sum tax of is 2, find the optimal capital. Verify that the government budget is balanced. (3)(15) Assume that endowments at young age increases from 10 to 21 units of goods and the lump-sum tax increases from 2 to 3, what is the new optimal capital? Is the government's budget still balanced with this policy change? (4)(20) Show that you can't achieve the golden rule capital with such a subsidy policy. Consider an overlapping generations model with capital that produces 2k0.5 at +1 if a person creates k, units of capital at t. Assume that there is a subsidy to production: government subsidizes the old person of 0.5 goods for each unit of output newly produced. (Hint: the subsidy is to new output, not to capital as in homework). Assume that the subsidy is paid for by a lump- sum tax of goods on each young person. Each agent lives for two periods and is endowed with w₁ units of the good when young and nothing when old. The preference of an agent is represented by the following utility: In(c₁) + 2ln(c₂) (1)(15') Find the new budget constraints of the individual. (2)(15) Assume that the endowment at young age w₁ is 10 and lump-sum tax of is 2, find the optimal capital. Verify that the government budget is balanced. (3)(15) Assume that endowments at young age increases from 10 to 21 units of goods and the lump-sum tax increases from 2 to 3, what is the new optimal capital? Is the government's budget still balanced with this policy change? (4)(20) Show that you can't achieve the golden rule capital with such a subsidy policy.
Expert Answer:
Answer rating: 100% (QA)
To analyze the overlapping generations model with a production subsidy lets define the preferences o... View the full answer
Related Book For
Organic Chemistry structure and function
ISBN: 978-1429204941
6th edition
Authors: K. Peter C. Vollhardt, Neil E. Schore
Posted Date:
Students also viewed these economics questions
-
The reaction is an example of which of the following processes? (a) El (b) E2 (c) SN1 (d) SN2 H,C CH,O ..
-
Multiple Choice Questions: 1. Program alteration is an example of which of the following? a. An active vulnerability. b. A passive vulnerability. c. An active threat. d. A passive threat. 2. Which of...
-
Identify whether each scenario is an example of a marginal cost, marginal benefit, or neither. Sort each scenario into the correct category. All options should be placed. 1. Jonthana is the chef and...
-
A ping pong ball is drawn at random from an urn consisting of balls numbered 4 through 9. A player wins $1.5 if the number on the ball is odd and loses $1.5 if the number is even. Let x be the amount...
-
Discuss what is meant by the term double taxation of corporations. Develop an example of double taxation using a corporation and shareholder.
-
The following selected data were taken from the financial statements of Ohio Cement Co. for December 31, 2003, 2002, and 2001: The 2003 net income was \($380,000,\) and the 2002 net income was...
-
Which of the following is least likely to be a criterion for defining a profession? a. Existence of a code of ethics b. Existence of a disciplinary mechanism c. Government-mandated requirement for...
-
Net income was $500,000 in 2009, $450,000 in 2010, and $522,000 in 2011.What is the percentage of change from (a) 2009 to 2010 and (b) 2010 to 2011? Is the change an increase or a decrease?
-
Mannix Corporation stock currently sells for $75 per share. The market requires a return of 13 percent on the firm's stock.If the company maintains a constant 6 percent growth rate in dividends, what...
-
It is September 2019 and you have just met with Ron Smith. Ron owns a battery-operated children's car manufacturing company, Car-It, and needs your advice on strategy. Ron is a self-made car builder....
-
1. What advantages did Citigroups managers think would result from creating a financial supermarket? 2. Why didnt the financial supermarket concept pay off the way Citis managers had anticipated? 3....
-
What is the response spectrum of a pulse?
-
What is meant by the approximation of a pulse being short duration?
-
The convolution integral can be derived using Laplace transforms or variation of parameters. Indicate whether the statement presented is true or false. If true, state why. If false, rewrite the...
-
What does the convolution integral represent?
-
What is the physical meaning of the function \(h(t)\) ?
-
. What are the specific requirements, adopted from WTO by CBSA, under the Customs Tariff Act and D11-4-4 Rules of Origin regulations for imported goods to qualify for preferential tariff treatment...
-
What exactly is a prima facie duty? How does an ethic of prima facie duties differ from monistic and absolutist ethical theories?
-
At room temperature, 1,2-dibromoethane exists as an equilibrium mixture in which 89% of the molecules are in an anti conformation and 11% are gauche. The comparable ratio for butane under the same...
-
For each alcohol in Problem 51 of Chapter 8,'suggest a synthetic route that starts with an oxacyclopropane (if possible)?
-
Draw a flowchart that diagrams a method for the resolution of racemic 2-hydroxypropanoic acid (lactic acid, Table 5-1), using (5)-1-phenylethanamine.
-
The Whitney Bluebirds football team sells a 15 -game season ticket for \(\$ 180\). Assume that the team sells 2,000 season tickets on August 10. The tickets are all used for admission. a. Prepare a...
-
Calculations Beck Company has just billed a customer for \(\$ 1,400\), an amount that includes an eight percent excise tax and a four percent state sales tax. a. What amount of revenue is recorded?...
-
The following note transactions occurred during the year for Zale Company: Nov. 25 Zale issued a 120 -day, 12 percent note payable for \(\$ 9,000\) to Porter Company for merchandise. Dec. 10 Zale's...
Study smarter with the SolutionInn App