Note: Hand written solution is not accepted. Modify the previous question. Now government spending increases household's util-ity, like public goods provision. Suppose household's instantaneous utility is repre-sented byand the resource constraint isu (Ct, Gt) ==Ct ==(Ct + G₁)¹-01 - 0: ko + (1 − 8)kt – Gt — kt+1.Assume there is no population growth and technological change. Suppose that theeconomy 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 andC.(c) Unlike (b), suppose the policy change is temporary (and everybody knows whenthe government spending goes back to G₁). Explain the dynamic behaviors ofk and c.

The utility function for a typical household measures the contentment or welfare derived from…

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.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter13: General Equilibrium And Welfare

Section: Chapter Questions

Problem 13.4P

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