4. [22 points] Consider the extended Ramsey model with government as in Section 4.2 in the lecture notes. Suppose now the government expenditure, g = G/L, is in the form of providing public capital, which enhances the productivity of the private capital, k, so that = f(k,) where f₁(k,ĝ) > 0 and f₁₂ (k,ĝ)>0. (The rest of the model is the same as in the notes.) a) What would be the dynamic equations describing the equilibrium path of the economy? b) Analyze the effect of the government expenditure on the steady state ĉ and ✩ of the economy. Explain with diagram and intuition.

4. [22 points] Consider the extended Ramsey model with government as in Section 4.2 in the lecture notes. Suppose now the government expenditure, g = G/L, is in the form of providing public capital, which enhances the productivity of the private capital, k, so that = f(k,) where f₁(k,ĝ) > 0 and f₁₂ (k,ĝ)>0. (The rest of the model is the same as in the notes.) a) What would be the dynamic equations describing the equilibrium path of the economy? b) Analyze the effect of the government expenditure on the steady state ĉ and ✩ of the economy. Explain with diagram and intuition.

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 22CTQ: Explain why the government might prefer to provide incentives to private firms to do investment or...

See similar textbooks

Similar questions

What does the concept of rationality have to do with Ricardian equivalence?
Assume that the newly independent government of Tanzania employed you in 1964. Now free from British rule, the Tanzanian parliament has decided that it will spend 10 million shillings on schools, roads, and healthcare for the year. You estimate that the net taxes for the year are eight million shillings. The government will finance the difference by selling 10-year government bonds at 12% interest per year. Parliament must add the interest on outstanding bonds to government expenditure each year. Assume that Parliament places additional taxes to finance this increase in government expenditure so the gap between government spending is always two million. If the school, road, and healthcare budget are unchanged, compute the value of the accumulated debt in 10 years.
What are some fiscal policies for improving a societys human capital?
Why are expenditures such as crime prevention and education typically done at the state and local level rather than at the federal level?
What are some fiscal policies for improving the technologies that the economy will have to draw upon in the future?
In a country, private savings equals 600, the government budget surplus equals 200, and the trade surplus equals 100. What is the level of private Investment in this economy?
Illustrate the concept of Ricardian equivalence using the demand and supply of financial capital graph.
How would you expect larger budget deficits to affect private sector investment in physical capital? Why?
True or False: Federal spending has grown substantially in recent decades. By world standards, the U.S. government controls a relatively large share of the U.S. economy. A majority of the federal governments revenue Is collected through personal income taxes. Education spending is slightly larger at the federal level than at the state and local level. State and local government spending has not risen much in recent decades. Defense spending is higher now than ever. The share of the economy going to federal taxes has increased substantially over time. Foreign aid is a large portion, although less than half, of federal spending. Federal deficits have been very large for the last two decades. The accumulated federal debt as a share of GDP is near an all-time high.
What is the theory of Ricardian equivalence?
Sketch a diagram of how sustained budget deficits cause low economic growth.
Is it inevitable that government must become involved in supporting investments in new technology?