Let's examine the role of taxes in the Solow-Swan model. Imagine that the behavior of an economy maybe summarized by the following three equations:K41 = I - 8K,I = s (1- 7) Y,Y = K (A,L)'-aAssume that population grows at rate n and technology at rate g, so that L+1/L = N+1/N = 1+nand At+1/At = 1 + g, respectively. Income in this economy is taxed with rate T and the tax revenuesare used for government consumption which is useless from the point of view of households.(a). Transform the three equations into per effective labor form, i.e. divide them by A, L4. Make use ofnotational convention t= Xt/ (A,L).(b). Find the balanced growth path level of capital per effective labor k in this economy.

a) We have a production function, Yt= KtαAtLt1-α Here, the At is variable for efficiency of labor,…

Let's examine the role of taxes in the Solow-Swan model. Imagine that the behavior of an economy may be summarized by the following three equations: K+1 = 1,-8K I = 8 (1-7) Y, Y = K (A,L)-a Assume that population grows at rate n and technology at rate g, so that L41/L N41/N = 1+n and At+1/At = 1 + g, respectively. Income in this economy is taxed with rate r and the tax revenues are used for government consumption which is useless from the point of view of households. (a). Transform the three equations into per effective labor form, i.e. divide them by A, L. Make use of notational convention ft Xt/(A,L). (b). Find the balanced growth path level of capital per effective labor k in this economy.

Let's examine the role of taxes in the Solow-Swan model. Imagine that the behavior of an economy may be summarized by the following three equations: K+1 = 1,-8K I = 8 (1-7) Y, Y = K (A,L)-a Assume that population grows at rate n and technology at rate g, so that L41/L N41/N = 1+n and At+1/At = 1 + g, respectively. Income in this economy is taxed with rate r and the tax revenues are used for government consumption which is useless from the point of view of households. (a). Transform the three equations into per effective labor form, i.e. divide them by A, L. Make use of notational convention ft Xt/(A,L). (b). Find the balanced growth path level of capital per effective labor k in this economy.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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