1 Planner’s Discounting Suppose that the planner discounts the utility of future generations at the common rate σ. How does the level of public debt decided by a government who aims to achieve the planners’ optimal is affected by different values of σ? Show the mathematical condition and provide economic intuition. (Hint: the optimal steady state we saw in class implicitly assumed that the planner was placing the same weight to all generations. You have to relax this assumption.)

1 Planner’s Discounting Suppose that the planner discounts the utility of future generations at the common rate σ. How does the level of public debt decided by a government who aims to achieve the planners’ optimal is affected by different values of σ? Show the mathematical condition and provide economic intuition. (Hint: the optimal steady state we saw in class implicitly assumed that the planner was placing the same weight to all generations. You have to relax this assumption.)

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter31: The Impacts Of Government Borrowing

Section: Chapter Questions

Problem 11RQ: What does the concept of rationality have to do with Ricardian equivalence?

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Q3
What does the concept of rationality have to do with Ricardian equivalence?
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