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Unformatted text preview: does not increase its spending or change its behavior in any other way. This government will retire in 2 or 6 years and does not want to leave any funds to Democrats. Therefore any savings it has will be paid back to Joe. Joe will be alive when the change of the government occurs. What happens to his savings? Does it matter when the government retires? 3. In the Solow model, suppose that the marginal product of capital increases for each quantity of the capital input, given the labor input. a. Show the effects of this on the aggregate production function. b. Using a diagram, determine the effects on the quantity of capital per worker, and output per worker in the steady state. c. BRIEFLY explain your results. 4. LAST HOMEWORK. 5. Ricardian equivalence, permanent income hypothesis, life cycle pattern of savings and consumption....
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This note was uploaded on 10/12/2008 for the course ECON 361 taught by Professor Besh during the Fall '08 term at Cornell University (Engineering School).
- Fall '08