Consider the standard neoclassical growth model where there are two types of individuals: capitalists and workers. Capitalists own the initial wealth and do not work. Workers do not save. Technology is the standard neoclassical type.
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- Explain the differences and similarities between Neoclassical Growth and New Keynesian models based on:1. Economic Actors2. Assumption of Market TypeConsider a 4-sector Keynesian model like that discussed in class with the following characteristics: exogenous consumption=10000, exogenous taxation=4000, government spending=5000, exports=5000, planned investment=2000. The marginal propensity to save=50%, the marginal tax rate (t)=30% and the marginal propensity to import (m)=20%. The potential output for the economy is 16000. Note that import demand is given by M=m(1-t)Y. 1. What is the output gap?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 = It + (1 – 8) K. I = s (1 – T) Y Y; = K¢ (A,Lt)'-a Assume that population grows at rate n and technology at rate g, so that Lt+1/Lt = N++1/N = 1+ n and A+1/A = 1+ g, respectively. Income in this economy is taxed with rate T 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 = 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 path level 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 path level of consumption per…
- What the diffrrent and similaries of heckscher ohlin model and ricardian model and their assumptionsReview the fundamental microeconomic assumptions on the consumers’ behaviour within the neoclassical model. What are the main strengths and the main limitations of those assumptions? Discuss with theoretical and applied evidence.The primary goal of effective macroeconomic policies is/ are ......................................... Select one: A. Enhances prospects for growth and improved living standards B. To reduce uncertainty and risk in economic decision-making C. Have an impact on how income is distributed across economic classes D. All of the given options
- 2. Let's create a simple, two-period neoclassical model In this question, in period t you only use labor to make period t output, and then you decide how much of that output to convert into capital that can be used later to help make period t+1 output. That means the "representative agent" has to decide how much of period t output to consume rather than save, but there's no such choice in period t+1. After all, t+1 is the end of time. Output is made in this very simple, constant returns to scale manner, so in each period double the input creates double the output: Y₁ = N₁ Y zK = You get log utility from consumption in the first period, but square root in the second period Of course, you don't like work, so extra hours of work hurt your utility: U = ln(Ct) — mNt + 2(Ct+1)¹/² In this simple economy with no externalities and perfect property rights, Adam Smith's Invisible Hand Theorem will hold in its most optimistic form: A benevo- lent social planner and a decentralized private market…Question 1 a) Carefully explain the major differences between the Keynes’ and Fisher’s models ofconsumption.Is there any empirical evidence to support the prediction of Ricardian Model? Explain!
- Why is it difficult in economics to test theories and assumptions compared to the natural sciences? What are the testing methods? How can you test Ricardian Model - whether it holds or not?What is meant by dynamic inconsistency? Give at least two examples of policies that are dynamically inconsistent.2. Let's create a simple, two-period neoclassical model, far simpler than the models of GLS Chapter 12. In this question, in period t you only use labor to make period t output, and then you decide how much of that output to convert into capital that can be used later to help make period t+1 output. That means the "representative agent" has to decide how much of period t output to consume rather than save, but there's no such choice in period t+1. After all, t+1 is the end of time. Output is made in this very simple, constant returns to scale manner, so in each period double the input creates double the output: YN, YzK You get log utility from consumption in the first period, but square root in the second period (I chose that for a reason-notice that log has stronger diminishing marginal utility than square root!). Of course, you don't like work, so extra hours of work hurt your utility: U = ln(Ct) mNt + 2(C++1) 1/2 -