ECON 359 TUTORIAL 3
Hello, dear friend, you can consult us at any time if you have any questions, add WeChat: daixieit
ECON 359
TUTORIAL 3
Tutorial Activity #5
Modify the Solow growth model by including government spending, as follows. The government purchases G units of consumption goods in the current period, where G = gN and g is a positive constant. The government finances its purchases through lump-sum taxes on consumers, where T denotes total taxes, and the government budget is balanced each period, sothat G=T.Consumers consume a constant fraction of disposable income-that is,C=(1-s)(Y-T),
where s is the saving rate,withO<s<1.
(a)Derive equations similar to(7. 17),(7. 18)and (7. 19) in the text. Show in
a diagram how the quantity of capital per worker,k*,is determined.
(b)Show that there can be two steady states, one with high k* and one with
low k*.Which of these is a stable steady state and which is unstable?
(c) Ignore the unstable steady-state.Determine the effects of an increase in g on capital per worker and on output per worker in the steady state. What are the effects on the growth rates of aggregate output, aggregate
consumption and aggregate investment? Explain your results.
Tutorial Activity #6
Alter the Solow growth model so that the production technology is given by Y=zK,where Y is output,K is capital andzis total factor productivity.
Thus output is produced only with capital.
(a)Show that it is possible for income per person to grow indefinitely.
(b)Also show that an increase in the saving rate increases the growth rate of per capita income.
(c)From parts(a)and(b),what are the basic differences between this model and the basic Solow growth model?
2023-02-11