Government - Government Government is one of the three...

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Government Government is one of the three actors in an economy It undertakes fiscal policy Fiscal policyrefers to the government’s choices over its expenditures, taxes, transfers, and borrowing These choices are limited by the government budget constraint Competitive Equilibrium Equilibrium Modeling A model takes exogenousvariables and determines endogenousvariablesExogenous variables are determined outside of a macroeconomic model Given the exogenous variables, the model determines the endogenous variables Hypothetical experiments involve analyzing how changes in exogenous variables affect the endogenous variables A competitive equilibrium is a set of endogenous variables C, Ns, Nd, T, Y and w, such that, given the exogenous variables G, z, and K, the following conditions are satisfied:The consumer optimizes given w, T, and π The firm optimizes given z, K, and w The market for labour clears---that is, Ns= Nd
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