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208-2011-L5 - Econ208 MarekKapicka Lecture5 WhatToDo n...

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Econ 208 Marek Kapicka Lecture 5 The Effects of Government Spending
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What To Do n Read: DLS, Chapter 12
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Where are we? n Introduction: A model with no Government n The Effects of Government Spending n Government Taxation and Government Debt n Fiscal and Monetary Policy n Optimal Monetary Policy n Financial Intermediation n Current Account Determination n Fiscal Deficits and Current Account
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Roadmap n Government Expenditures n A) Data on Gov’t Expenditures n B) Permanent Changes in Gov’t Spending n C) Temporary Changes in Gov’t Spending n D) Social Security
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B1) Permanent increase in Gov’t spending   Steady State n Output, Consumption and Investment n Steady State Output  increases  in gov’t  spending n Consumption  decreases  in gov’t spending  ( crowding out ) n Change in interest rate? ss t ss ss ss ss ss K I G K K C G K Y δ φ δ φ α α = - - - = + = ) 1 (
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B1) Permanent increase in Gov’t spending   Extension: Labor Supply n Assume that the utility depends on labor  supply n Production function given by  η η + - = + 1 ln ) , ( 1 L C L C U α α - = 1 ) , ( L K L K F
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