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# problem_set2_answers - (b Determine whether the c = 0 line...

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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 (Le. every period). Assume that this government consumption is financed by lump-sum 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.

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Unformatted text preview: (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 CD Su rr ~-n :.. 0(1[0 2, @ Ai ~(t)= ![{ttl] -c.(t)-(l\tS)iO) fi d~e-v Th \$ -=) feu ~ fIe. ... J, ~'?+e-u4 WItt. f)c{ t) s !l~(f)] -r-({d c (t) e J A d~e04 Th p~) r[{(~)l 5W/le ~-u 6 n. QA" rJu. 4<> it ~ s~-t '-.. , t WI fL C ::::0 C i~ c=o (=0 ~) k ~I ~fJh< -=-) c:;o LUAV.e 5l (k -h? '~ ~rt . (HJ 1; ) c t • c::-c (=0 (j)...
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problem_set2_answers - (b Determine whether the c = 0 line...

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