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Unformatted text preview: Mock Multiple Choice, Government Kyle F. Herkenhoff * UCLA Department of Economics April 16, 2011 1 Government (If you get lost on this question, thats okay, I will go over this in detail – all the tricks and proofs– everything!) Which of the following are true? (We assume a Cobb-Douglas Utility U = c α 1 c 1- α 2 ). Important Note: Assume α = 1 2 . (a) If there is a temporary increase in G 1 , then national savings must increase. (b) If there is an increase in T 1 , and government spending is constant, then national savings must increase. (c) If there is an increase in T 1 , and G 1 goes up by the same amount (so T 2 and G 2 are constant), then private savings must increase. (d) If there is an increase in T 1 , and G 1 goes up by the same amount, then c 1 decreases. (e) Two of the above (f) None of the above * Correspondence: [email protected] 1 Note: I will use budget balance, T 1 + T 2 1 + r = G 1 + G 2 1 + r Combined with the PV budget constraint, c 1 + c 2 1 + r = Y 1- T 1 + Y 2...
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- Spring '08
- Economics, government spending, National Savings, Kyle F. Herkenhoﬀ∗