2. Let's create a simple, two-period neoclassical model, far simpler than the models of GLS Chapter 12. In this question, in period t you only use labor to make period t output, and then you decide how much of that output to convert into capital that can be used later to help make period t+1 output. That means the "representative agent" has to decide how much of period t output to consume rather than save, but there's no such choice in period t+1. After all, t+1 is the end of time. Output is made in this very simple, constant returns to scale manner, so in each period double the input creates double the output: YN, YzK You get log utility from consumption in the first period, but square root in the second period (I chose that for a reason-notice that log has stronger diminishing marginal utility than square root!). Of course, you don't like work, so extra hours of work hurt your utility: U = ln(Ct) mNt + 2(C++1) 1/2 -

2. Let's create a simple, two-period neoclassical model, far simpler than the models of GLS Chapter 12. In this question, in period t you only use labor to make period t output, and then you decide how much of that output to convert into capital that can be used later to help make period t+1 output. That means the "representative agent" has to decide how much of period t output to consume rather than save, but there's no such choice in period t+1. After all, t+1 is the end of time. Output is made in this very simple, constant returns to scale manner, so in each period double the input creates double the output: YN, YzK You get log utility from consumption in the first period, but square root in the second period (I chose that for a reason-notice that log has stronger diminishing marginal utility than square root!). Of course, you don't like work, so extra hours of work hurt your utility: U = ln(Ct) mNt + 2(C++1) 1/2 -

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

ChapterD: The Expenditure-output Model

Section: Chapter Questions

Problem 25CTQ: Exercise D25 What role does government play in stabilizing the economy and what are the tradeoffs...

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Exercise D25 What role does government play in stabilizing the economy and what are the tradeoffs that must be considered?