4. Consider the following government's budget constraint: T₁ = Gt +TR₁ = √Yt +TRt, where TR is the transfer payment from the government to the household. In this case, the household's asset-accumulation equation is given by K₁ = R₁K++ Wilt - Ct - Tt +TRt Suppose the lump-sum tax T₁ is fixed, and the transfer payment of government TR adjusts endogenously to offset the change in y and balance the government's budget constraint. Does the presence of TR cause any difference to the effects of y on the labour and capital markets in the short run and long run?
4. Consider the following government's budget constraint: T₁ = Gt +TR₁ = √Yt +TRt, where TR is the transfer payment from the government to the household. In this case, the household's asset-accumulation equation is given by K₁ = R₁K++ Wilt - Ct - Tt +TRt Suppose the lump-sum tax T₁ is fixed, and the transfer payment of government TR adjusts endogenously to offset the change in y and balance the government's budget constraint. Does the presence of TR cause any difference to the effects of y on the labour and capital markets in the short run and long run?
Chapter11: Fiscal Policy
Section: Chapter Questions
Problem 1.4P
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