Econ 114 Javier Birchenall Due date: Tuesday, November 23, 2010 Problem set 6: Government and economic growth The following problem set studies the e f ect of government spending on the Solow model. You will show that under government provision of capital, it is optimal to have a government of a limited size. The problem is basedonprob lem12 .4ofthetextbook .P lantospend4hours on these questions. Please return the problem set on time (next Tuesday during class), remember you have the chance to miss one and only one, use it wisely. If you have any problems regarding the questions please contact me by e-mail: [email protected].Good luck! I. (100%) Government capital Consider an extension of the Solow model from Chapter 3 to encompass a second type of capital, called government capital, which consists of publicly funded infrastructure such as roads and ports. Let denote the quantity of government capital per worker,
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