midterm-14-451-spring2003

Midterm-14-451-sprin - 14.451 Midterm George-Marios Angeletos Spring 2003 You have 1.5 hours You must answer all questions No books or notes are

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14.451 Midterm George-Marios Angeletos Spring 2003 You have 1.5 hours . You must answer all questions. No books or notes are allowed. The f rst question is stated in discrete time. But if you feel more comfortable in continuous time, feel free to give your answer in continuous time. Good luck! Question 1 Consider the neoclassical growth model, in discrete time. There is no exogenous technological change and no population growth; the size of population and labor is 1 . The technology is Cobb- Douglas: y t = f ( k t )= k α t where k t denotes the capital stock, y t denotes output or income, and α (0 , 1) . Firms are compet- itive. Hence, r t = f 0 ( k t ) and w t = f ( k t ) f 0 ( k t ) , implying y t = r t k t + w t , where r t is the return on capital and w t is the wage rate. We introduce a government in the model. The government imposes a time-invariant F at-rate tax on the consumption expenditures of households. It uses the revenues from the consumption tax to f nance a public good that provides utility to households. The government budget in period
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This note was uploaded on 12/21/2011 for the course ECON 3014 taught by Professor Michaelshaw during the Spring '11 term at HKU.

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Midterm-14-451-sprin - 14.451 Midterm George-Marios Angeletos Spring 2003 You have 1.5 hours You must answer all questions No books or notes are

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