Let's try to add the government to the Solow model that we have learned. Suppose that a government purchases goods in the amount of b per work.
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Let's try to add the government to the Solow model that we have learned.

Suppose that a government purchases goods in the amount of b per work. Therefore, in the case without population and technology growth, we will have the equation of motion for k being: Δk = sf(k) - b - δk Now suppose that the government permanently increases its purchases per worker (i.e., b becomes larger). What are the effects on the steady state levels of capital per worker and output per worker? Does the result imply that the economy is better without the government (so no government purchases)? If your answer is yes, what is the key reason/assumption in this particular type of Solow model for such a somewhat implausible result? If your answer is no, what does the model suggest on the optimal level of government spending?

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