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problem_set2 - taxes of amount G t per unit of effective...

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University of Toronto Mississauga Department of Economics ECO 325H: Advanced Economic Theory - Macro Prof. Kambourov Problem Set 2 Tuesday, October 13, 2009 1. Consider the Ramsey-Cass-Koopmans economy described in Chapter 2. Initially, the economy is on a balanced-growth path. Then, suppose that we introduce a government which consumes G ( t ) per unit of effective labor per unit of time (i.e. every period). Assume that this government consumption is financed by lump-sum
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Unformatted text preview: taxes of amount G ( t ) per unit of effective labor per unit time; thus the government always runs a balanced budget. (a) Write down the households’ budget constraint. (b) Determine whether the ˙ c = 0 line would change or not. (c) Determine whether the ˙ k = 0 line would change or not. (d) Discuss, using a graph, the transition from the initial balanced-growth path to the new balanced growth path. 2. Romer 2.6 1...
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