i) if taxes are levied as a lump sum ii) if taxes are levied as a proportionate tax on labour income (for simplicity you can assume that in this case the amount of tax levied determines the amount of spending) b) Now assume a 2 period model in which the consumer solves the intertemporal consumption problem (you may ignore the labour supply decision in this case, and treat income in each period as exogenous to the consumer). i) Show diagramatically the case of Ricardian Equivalence ii) Discuss the implications of borrowing constraints for this result, illustrating your answer where relevant using the two period model. c) In part a), section i) you should have found that a rise in government spending boosts GDP. Comment on the contrast between this effect and the "Keynesian Multiplier", relating your analysis to earlier answers where relevant.

i) if taxes are levied as a lump sum ii) if taxes are levied as a proportionate tax on labour income (for simplicity you can assume that in this case the amount of tax levied determines the amount of spending) b) Now assume a 2 period model in which the consumer solves the intertemporal consumption problem (you may ignore the labour supply decision in this case, and treat income in each period as exogenous to the consumer). i) Show diagramatically the case of Ricardian Equivalence ii) Discuss the implications of borrowing constraints for this result, illustrating your answer where relevant using the two period model. c) In part a), section i) you should have found that a rise in government spending boosts GDP. Comment on the contrast between this effect and the "Keynesian Multiplier", relating your analysis to earlier answers where relevant.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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