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Modify the previous question. Now government spending increases household's util- ity, like public goods provision. Suppose household's instantaneous utility is repre- sented by u (Ct, Gt) and the resource constraint is = (c + G₁)¹-0 1-0 Ct = k + (18)kt - Gt - kt+1. Assume there is no population growth and technological change. Suppose that the economy is initially at its steady state with G₁ = GL> 0 for all t. (a) Solve for the steady state capital per capita and consumption per capita. (b) Suppose that the government unexpectedly and permanently changes the pol- icy from Gt G₁ to G₁ = GH > G₁. Explain the dynamic behaviors of k and = C. (c) Unlike (b), suppose the policy change is temporary (and everybody knows when the government spending goes back to G₁). Explain the dynamic behaviors of k and c.

Modify the previous question. Now government spending increases household's util- ity, like public goods provision. Suppose household's instantaneous utility is repre- sented by u (Ct, Gt) and the resource constraint is = (c + G₁)¹-0 1-0 Ct = k + (18)kt - Gt - kt+1. Assume there is no population growth and technological change. Suppose that the economy is initially at its steady state with G₁ = GL> 0 for all t. (a) Solve for the steady state capital per capita and consumption per capita. (b) Suppose that the government unexpectedly and permanently changes the pol- icy from Gt G₁ to G₁ = GH > G₁. Explain the dynamic behaviors of k and = C. (c) Unlike (b), suppose the policy change is temporary (and everybody knows when the government spending goes back to G₁). Explain the dynamic behaviors of k and c.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Modify the previous question. Now government spending increases household's util- ity, like public goods provision. Suppose household's instantaneous utility is repre- sented by and the resource constraint is u (Ct, Gt) = = Ct = = (Ct + G₁)¹-0 1 - 0 : ko + (1 − 8)kt – Gt — kt+1. Assume there is no population growth and technological change. Suppose that the economy is initially at its steady state with Gt = GL> 0 for all t. (a) Solve for the steady state capital per capita and consumption per capita. (b) Suppose that the government unexpectedly and permanently changes the pol- icy from Gt G₁ to G₁ = GH > G₁. Explain the dynamic behaviors of k and C. (c) Unlike (b), suppose the policy change is temporary (and everybody knows when the government spending goes back to G₁). Explain the dynamic behaviors of k and c.
Transcribed Image Text:Modify the previous question. Now government spending increases household's util- ity, like public goods provision. Suppose household's instantaneous utility is repre- sented by and the resource constraint is u (Ct, Gt) = = Ct = = (Ct + G₁)¹-0 1 - 0 : ko + (1 − 8)kt – Gt — kt+1. Assume there is no population growth and technological change. Suppose that the economy is initially at its steady state with Gt = GL> 0 for all t. (a) Solve for the steady state capital per capita and consumption per capita. (b) Suppose that the government unexpectedly and permanently changes the pol- icy from Gt G₁ to G₁ = GH > G₁. Explain the dynamic behaviors of k and C. (c) Unlike (b), suppose the policy change is temporary (and everybody knows when the government spending goes back to G₁). Explain the dynamic behaviors of k and c.
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