TANote-3_102Spring08

TANote-3_102Spring08 - ) , S ± 1 , S g , and S N on those...

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Econ 102 Macroeconomic Theory 3rd TA Section Note TA (Section: 1P): Daisuke Miyakawa April 15th. 2008 1. Intertemporal Choice Problem with Government Consider the following household problem: 8 > > > > > > > > > > > > > > > > > > > > > < > > > > > > > > > > > > > > > > > > > > > : max C;L U ( C;L ) = C 1 C 1 2 s.t. P 2 C 2 = (1 + r ) ( Y 1 T 1 P 1 C 1 ) + Y 2 T 2 : G 2 = (1 + r ) ( T 1 G 1 ) + T 2 : where C t : Consumption at date- t Y t : Income at date- t G t : Public expenditure (i.e., Government spending) at date- t T t : Tax at date- t r : Interest rate Assume P 1 = P 2 = 1 On this environment, we are asked to analyze the e/ect of various changes in ( G 1 ;G 2 ;T 1 ;T 2 ) to ( C ± 1 ;C ± 2 ) , S ± 1 (Private saving) ± Y 1 T 1 C ± 1 ( * P 1 = 1 ), S g (Public saving) = T 1 G 1 , and S N (National saving) = S ± 1 + S g . On the next session, I will go over the following three examples by using the setup above: 8 > < > : (1) T 1 # with keeping ( G 1 ;G 2 ) constant (2) G 1 " ±nanced by T 2 " (3) G 1 " ² G 2 " ±nanced by the same amount of increases 1 in T 1 " ² T 2 " I recommend you to think about what happens to ( C ± 1 ;C ± 2
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Unformatted text preview: ) , S ± 1 , S g , and S N on those two cases before coming to the next session. 2. Saving (Capital Supply) and Investment (Capital Demand) Problem The discussion for the capital market is very similar to the discussion for the labor market. 8 > < > : Labor Demand ² Capital Demand ( = Firm&s pro±t maximization problem Labor Supply ² Capital Supply ( = Household&s utility maximization problem Actually, we have already solved for the capital supply function (i.e., saving function) S ± 1 on the problem constructed above. I will explain (i) the basic properties of S ± 1 , most of which are very straightforward, (ii) the derivation of the capital demand function, and (iii) the basic properties of the capital demand function. 1...
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This note was uploaded on 12/11/2009 for the course ECON 180364203 taught by Professor Edwardmcdevitt during the Spring '09 term at UCLA.

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