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
. Also,
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
ff
erent results.
2. Refer to the part of “Finance public services by de
fi
cit” in PPT12 and
use numbers from Question 1.
(1) Under the
fi
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
, each old person’s consumption,
and each person’s generational account.
(2) Explain why the result in part (1) is identical to the result in Question
1 part (2).