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Unformatted text preview: Econ407 Advanced Macroeconomics Exam # 1 October 21, 2008 Instructor: Jos e Tessada Instructions : The exam consists of three questions, each one with five parts for a total of fifteen parts. Each part is worth two points , thus the exam has thirty points total . Please read carefully the instructions for question 3. Be concise, go straight to the point unless explicitly required to link different arguments. Write less than 10 lines per question. Writing long answers makes it harder for the grader to find the right arguments, thus restrain yourself from using too many words. Question 1 The Ramsey Model (a) Draw the equilibrium path (saddle path) and the c = 0 and k = 0 lines for the Ramsey model in the c- k space. Define c and k for this purpose. (b) In the Ramsey model with infinitely lived agents, show in the graph the golden-rule level of capital per capita? Will the economy ever achieve that level? Can the equilibrium in this economy be dynamically inefficient? Explain intuitively. (c) What happens with the steady state level of consumption and capital per capita if the government decides to finance a stream of government expenditures using lump-sum taxes (i.e., it charges a fixed amount of dollars as taxes to each household). Suppose this announcement is a surprise and it is believed to be permanent and that government budget is balanced all the time. What is the effect of this policy change on consumption, investment and capital stock? (d) What happens with the steady state level of consumption and capital per capita if the government decides to tax capital at a rate to finance a stream of government expenditures....
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This note was uploaded on 03/08/2009 for the course ECON 407 taught by Professor Josétessada during the Spring '09 term at Maryland.
- Spring '09