This problem adds the government to the growth model. Suppose that a government purchases goods in the

Question:

This problem adds the government to the growth model. Suppose that a government purchases goods in the amount of g per worker every year; with Nt, workers in year t, total government purchases are gNt. The government has a balanced budget so that its tax revenue in year t, Tt equals total government purchases. Total national saving St, is
St = s(Yt - Tt)
where Yt is total output and s is the saving rate.
a. Graphically show the steady state for the initial level of government purchases per worker.
b. Suppose that the government permanently increases its purchases per worker. What are the effects on the steady-state levels of capital per worker, output per worker, and consumption per worker? Does your result imply that the optimal level of government purchases is zero?
Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Macroeconomics

ISBN: 978-0321675606

6th Canadian Edition

Authors: Andrew B. Abel, Ben S. Bernanke, Dean Croushore, Ronald D. Kneebone

Question Posted: