Consider the Ramsey model seen in class. Assume population grows at rate n, and labour-augmenting technology grows at rate g. Relative risk aversion is constant and equal toe.1. For an initial value of capital per efficiency unit, k(0), use a phase diagram to sketch the differentpaths along which the economy may evolve for different levels of c(0) chosen, given the Eulerequation (derived from the household's optimization problem) and the steady state condition fromSolow.2. Do these paths also satisfy the household budget constraint and the requirement that capitalcannot be negative? Why or why not?3. Show that steady state capital (per efficiency unit) in the RCK framework is always lower than thegolden rule level. Provide intuition for this result.

The Ramsey model, named after the economist Frank Ramsey, is a neoclassical growth version that…

Answered: Ramsey model s

Business

Economics

Ramsey model s

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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