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:K++1 = It + (1 – 8) K.I = s (1 – T) YY; = K¢ (A,Lt)'-aAssume that population grows at rate n and technology at rate g, so that Lt+1/Lt = N++1/N = 1+ nand A+1/A = 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, L,. Make use ofnotational convention = X¢/ (A¿L¿).(b). Find the balanced growth path level of capital per effective labor k* in this economy.1(c). Discuss the effects of changes in parameters 8, n, g, s, T on the economy's balanced growth pathlevel of capital per effective labor k*.(d). Discuss the effects of changes in parameters 8, n, g, s, T on the economy's balanced growth pathlevel of consumption per effective labor ĉ*.(e). Households care about the level of consumption per capita, i.e. ct. This variable grows at rate gonce the economy reaches its balanced growth path. Discuss whether low g or high g is better fromthe point of view of households.

a) We have a production function, Yt=KtαAtLt1-α Here, the At is a To convert all equations in the…

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 = I + (1 – 8) Kį I = s (1 – 7) Y Y; = K¢ (A,L)'-a Assume that population grows at rate n and technology at rate g, so that L+1/L = N4+1/N = 1+n and At+1/A = 1+ g, respectively. Income in this economy is taxed with rate 7 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 AL. Make use of notational convention = X/ (A,L).

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 = I + (1 – 8) Kį I = s (1 – 7) Y Y; = K¢ (A,L)'-a Assume that population grows at rate n and technology at rate g, so that L+1/L = N4+1/N = 1+n and At+1/A = 1+ g, respectively. Income in this economy is taxed with rate 7 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 AL. Make use of notational convention = X/ (A,L).

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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