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Consider the Solow growth model as described in the preceding exercise and include government spending. The government purchases G = Lg units of consumption good in the current period with g a positive constant. The government finances its public purchases with a lump-sum tax on consumers, where T = G denotes the balanced budget total taxes. Suppose that consumers spend a fraction 1 - s of their disposable income where 0
a. Show in a diagram how the capital-labor ratio is determined and what its value is in a steady state.
b. How many steady states are possible?
c. Concentrate on the steady state with the highest capital-labor ratio. What is the impact of an increase in public spending per worker g on the capital-labor ratio and output per worker in the steady state? What are the effects on aggregate output, consumption, and investment? What is the effect on the growth rate? Explain briefly.
Gary and Diane must prepare a presentation. As part of their presentation, they must do a series of calculations and prepare 50 PowerPoint slides. It would take Gary 10 hours to do the required calculation and 10 hours to prepare the slides.
(Continuation of previous exercise) Suppose that the average price of a VCR during the same time period was governed by the rule p = 820 - 50t.
Water damage from flooding related to hurricane Sandy in two northeastern Cities resulted in damages estimated at $216 million. As a result of the claimant payouts, insurance companies raised homeowners' insurance rates by an average of $118 per y..
Austin Utilities is planning to install solar panels to provide some of the electricity for its groundwater desalting plant. The project would be done in two phases. The first phase will cost $4 million in year 1 and $5million in year 2.
b) Using a method similar to the consumer price index, compute the percentage change in the overall price level. c) If you were to learn that a bottle of Gatorade increased in size from 2009 to 2010, should that information affect your calculation..
Draw a game tree like the one shown in Figure 27.10 on page 588 and predict the outcome of the game. How will the turtle firm respond to the threat of entry? Will the frog firm enter the market?
Generic Brands is expected to earn a profit of $1 million each year forever into the future. If the interest rate is 5%, and there are 20,000 shares of company stock outstanding, how much will investors be willing to pay for a single share of Gene..
the number of unemployed workers declined by only 1.1 million. How are these numbers consistent with each other Why might one expect a reduction in the number of people counted as unemployed to be smaller than the increase in the number of people ..
The current market wage rate is $10, the rental rate of land is $1,000 per unit, and the rental rate of capital is $500. Production managers at a firm find that under their current allocation of factors of production, the marginal revenue product ..
Which one of Marshall's rules suggests why labor demand should be relatively inelastic for public school teachers and nurses? Explain.
Firm A has developed a new product and must now decide whether to install enough capacity to produce either one or two units of the product. It expects production costs (including capacity building) to be C(q) = 8q + q2 and it estimates demand for..
What is the dollar rate of return on a 10,000 pound deposit held in a British bank for a year when the British interest rate (annual) is 10 percent, and the exchange rate is $1.50 per pound at the beginning of the year, and is $1.38 per pound at t..
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