Piketty (2014) argues that a fall in the growth rate of the economy is likely to lead to an increase in the difference between the real interest rate and the growth rate. This problem asks you to investigate this
Piketty (2014) argues that a fall in the growth rate of the economy is likely to lead to an increase in the difference between the real interest rate and the growth rate. This problem asks you to investigate this issue in the context of the Ramsey Cass Koopmans model. Specifically, consider a Ramsey Cass Koopmans economy that is on its balanced growth path, and suppose there is a permanent fall in g.
(a) How, if at all, does this affect the k = 0 curve?
(b) How, if at all, does this affect the c = 0 curve?
(c) At the time of the change, does c rise, fall, or stay the same, or is it not possible to tell?
(d) At the time of the change, does r - g rise, fall, or stay the same, or is it not possible to tell?
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