(a) Show that the Solow-Swan model with labour-augmenting technological change can account for stylized facts (SF1)-(SF6) mentioned in the textbook. (b) "An economy is dynamically inefficient if its citizens are short-sighted and save too little. Savings should be stimulated by the policy maker in a dynam- ically inefficient economy." Explain and evaluate these propositions. (c) Explain intuitively why, in the context of the extended Ramsey model, a lump- sum tax-financed increase in government consumption leads to crowding in of private capital and an increase in output. Explain also the transition mechan- ism. (d) Does the Cobb-Douglas production function Y = K*Ll-a satisfy all the Inada conditions? Are the inputs necessary?

(a) Show that the Solow-Swan model with labour-augmenting technological change can account for stylized facts (SF1)-(SF6) mentioned in the textbook. (b) "An economy is dynamically inefficient if its citizens are short-sighted and save too little. Savings should be stimulated by the policy maker in a dynam- ically inefficient economy." Explain and evaluate these propositions. (c) Explain intuitively why, in the context of the extended Ramsey model, a lump- sum tax-financed increase in government consumption leads to crowding in of private capital and an increase in output. Explain also the transition mechan- ism. (d) Does the Cobb-Douglas production function Y = K*Ll-a satisfy all the Inada conditions? Are the inputs necessary?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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