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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.
Cooper Bank is considering making a loan to Valles Global Industries to buy a machine tool worth $300 million at 1% interest. The tool has no salvage value and is depreciated over 3 years by sum-of-years digits. In this state, VGI pays 50% tax. ..
What determines the slope of the aggregate expenditures schedule? What is the equilibrium output?
A city is concerned about rising rent for low-income households. Several policies being considered. Suppose there are a large number of construction companies, each with the identical cost function for building low-cost houses
The firm currently uses 50,000 workers to produce 200,000 units of output per day. The daily wage per worker is $80, and the price of the firm's output is $25. The cost of other variable inputs is $400,000 per day.
A company would like to have a bond offering to raise $100M for the construction of a new plant. By the time the bond goes to market, they receive only $93M. The bond is a 10 year offering with quarterly payments. The annual percentage interest ra..
To invest in upgrades to your company's heating , you borrow $165,000 from a local bank. If the bank asks you repay the loan in 15 equal annual installments of $19,500, determine the bank's annual interest rate on this loan transaction.
A selfless person approached Jones and Smith with a $100 bill and offers to sell it to the highest bidder, but both the winning and losing bidders must pay for their bids. So if Jones bids $2 and Smith bids $1they pay a total of $3, but Jones gets..
A major pension fund is interested in purchasing Barrett's stock. The pension fund manager has estimated Barrett's free cash flows for the next four years as follows: $3 million, $6 million, $10 million, and $15 million.
A new machine is to be purchased for $150,000. The company believes it will generate $60,000 annually in revenue due to the purchase of this machine. The company will have to train an operator to run this machine
Suppose you borrowed 10,000 dollars at an interest rate of 8 percent compounded monthly over 36 months. At the end of the first year( 12 payments), you want to negotiate with the bank to pay off the remainder of the loan in 8 equal quarterly payme..
Characterize the equilibrium path of this economy, and show that as α → 1, the equilibrium path approaches that of the baseline AK economy. Interpret this result.
Linda loves buying shoes and going out to dance. Her utility function for pairs of shoes, S, and the number of times she goes dancing per month, T, is U(S,T)=5ST. It costs Linda $50 to buy a new pair of shoes, and $25 to spend an evening dancing.
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