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Practice Prelim 2

That is in country b the

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Unformatted text preview: y B the government uses all the resources it collects to buy capital goods that it later (uniformly) distributes back to the economy. That is, in country B the government “invests” on the behalf of its citizens. (i) What are the total savings rates in these economies? (ii) Which country has higher capital per worker? Output per worker? (iii) Can you say anything about consumption per worker? (iv) Suppose in country B the savings rate is α. In the long run what is the “best” tax rate (i.e., the rate that guarantees the highest consumption per worker) for this country? (15 points each) (v) (Bonus: 10 points) Suppose in country A the savings rate is above α. Why would the government choose a positive tax? Inter‐temporal Decision Making (30 points) 2. Here is an economy: There are two time periods. There are two generations of equal size: Young and Old, and there is government. Young do not earn anything in the first period and earn 200 in the second period. Old earn 100 in the first...
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