Homework 9 (Due November 15)
1. Refer to the part of “Finance public services with zero debt” in PPT12.
Let
N
= 100
,
β
=0
.
5
,
A
t
=4
all
t
,
K
0
=50
,and
G
=100
.
(1) Under policy 1 (tax old), compute
k
t
,
y
t
and
c
ot
+1
,for
t
=0
,
1
,
2
.A
l
so
,
compute the steady state values of
k
,
y
, each old person’s consumption, and
each person’s generational account.
(2) Under policy 2 (tax young), compute
k
t
,
y
t
and
c
ot
+1
,for
t
=0
,
1
,
2
.
Also, compute the steady state values of
k
,
y
, each old person’s consumption,
and each person’s generational account.
(3) Explain why two policies lead to di
f
erent results.
2. Refer to the part of “Finance public services by de
f
cit” in PPT12 and
use numbers from Question 1.
(1) Under the
f
scal policy there, compute
k
t
,
y
t
and
c
ot
+1
,for
t
=0
,
1
,
2
.
Also, compute the steady state values of
k
,
y